You’re in business to make a lot of it—meticulous planning is vital.
Whatever your reason is for starting your business, it all boils down to one motive – money.
Even non-profit organizations must make sure that they have enough funds pouring in to sustain the business.
As a start-up or established business, your mission of satisfying customers, retaining staff, and running a successful business cannot be accomplished without sufficient fuel – or dinars.
There are a ton of tools out there to help keep track of, manage and report your financial performance. There is software you can buy and install on your PCs, there are cloud-based services where you pay a nominal fee per month to access these applications, and there are simple spreadsheet templates you can use – all depending on the complexity of your business.
But before selecting the right software or tool, you need to identify the reason behind starting your business: is it a side business you want to have in addition to a day-job? Is it your primary source of living? Is it a partnership with some friends? Or is it a temporary business where you want to be in and out in 5 years?
Whatever the reason is, you need to build that into your initial business plan.
As a startup, you must consider and quantify a number of costs: advertising, equipment, insurance, legal fees (if any), permit/licensing fees, remodeling costs, supplies, utilities, recruitment costs and working capital. Entrepreneurs often neglect working capital, but it is actually one of the most important components to keep your business alive. It basically is your safety cushion and is a multiple of your monthly forecasted expenses.
For instance, let’s say your operating expenses per month are: rent, wages, utilities and supplies, and they total to BD1,000. Your working capital can, therefore, be BD5,000 and that needs to be added to your startup budget. This will prevent you from digging into your personal finances to cover the expenses in your first few months, since revenue will not be at its maximum from day 1. Preparation is key to survival.
Once your doors are open, in order to keep them open, you must manage your operating expenses. In addition to the above, these expenses include: advertising, insurance (social, physical, etc.), transport, entertainment, etc.
The total you arrive at from analyzing your operating expenses is basically your break-even – how much money you need to make to cover these expenses.
Of course, it goes without saying that an equal amount of energy must be directed at tracking your revenue – how much money you make, what your credit card fees are, and how to maximize your revenue when business is slow. There are many marketing initiatives you could use to boost up your sales.
If you think that’s enough – think again. Not only are you supposed to manage your startup costs, analyze your revenue and keep track of your costs, you must also analyze your cash flow. Cash flow analysis helps you budget for the future and gives you insight on the financial health of your company.
A project’s cash flow identifies the financial health of your business and predicts your cash flow in the coming months or years. A monthly cash flow reveals the current state of your business. You don’t have control over the money that comes in, but you do control the money that goes out – and for that, a cash flow statement is useful.
The basis components of a cash flow statement are:
Starting cash, or starting balance – the cash on hand at the beginning of the month
Cash in – revenue received during the month
Cash out – All expenses paid
Ending cash, or ending balance – formula: starting cash plus cash in minus cash out. Positive is good. Negative is an alarm.
Let me give you an example of how to measure cash flow: Assume you start the month with BD1,000. You brought in BD500 and paid out BD400 in total expenses. Your ending balance is: BD1,100. Although you brought in sales, you cash flow was only BD100. To survive, you need to have positive cash flows, which means, take in more than you spend.
Even a small lag in sales can affect your cash flow, so be wary of that. At the end of every month, compare your business sales with your estimated cash flow projections. If they are not in sync, determine the reason behind that and rectify it. Starting a business is no sit-back-and-wait-for-the-money-to-roll-in proposition. You have to be on your toes, thinking ahead, managing that money even before it comes in (projections) so it works for you instead of slipping away
“To survive, you need to have positive cash flows, which means, take in more than you spend.”
There are several sources online that can help, these are some really useful templates and guides I found at Score.org that you can try here.
Money does make the world go ‘round. There’s no shame in that. And starting with your business – making sure money pours in and continues to pour in – will make the world continue its spin.
