This is the golden age of entrepreneurship. From a college dropout with a brilliant business idea, to an excellent home baker starting an online bakery, entrepreneurs in the new millennium are changing the tides of traditional businesses. But with 50% of start-ups shutting their doors even before they hit the 5 year mark, the one thing that seems to deter some budding entrepreneurs is taking stock of the numbers that matter. Because numbers are the building blocks of a successful business.
The art of reading numbers and understanding what they are trying to tell you is at the core of a successful business. If you can’t make the numbers work for you, then no matter how great the idea, you will just not hit its maximum potential. Here are some of the numbers that you need to evaluate to create a strong, viable and successful business.
As you sow, so shall you reap. You need to carefully consider the capital you need to invest in your business because this is what is going to initiate the chain reaction for everything that follows. Weigh your marketing plan, competitors’ positioning, potential risks and profitability factors to understand exactly how much money you can safely invest. A great way to gauge the market, while raising capital, is to test crowdfunding on one of the many crowdfunding platforms, such as Kickstarter.
This translates into the yearly budget and estimated profit. The important factors to be considered while calculating this are the raw materials or capital costs, labor charges, buffer, taxes, rent, maintenance, other unaccounted costs as well as input and outflow of both workforce and finances.
Many of these factors will change based on the nature of your business. Remember that although you may estimate that the business will generate a certain rate of revenue growth going forward or that certain expenses will be fixed or can be controlled, these are only estimates and not set in stone. They will however act as guiding lights as you try to navigate your way forward and grow your business.
Maintaining a steady cash flow requires substantial amount of reliance on debt, at least for a majority of new businesses. The debt you owe the bank, investors or any other institution will be the loans taken by your business that must be repaid, usually with interest, over a period of time.
However you may have taken a loan from an alternate source including accountants, credit unions or others. Calculating a tentative inflow or outflow of money from these sources is important. It is usually advised to split your loan amount between two or more sources so that no single lender can overpower your business.
You have set up a successful and profitable business but imagine one day there is a spark in the motor room of your factory. The spark that started in a corner burned down a huge part of your factory before someone could put that fire out. Now as hypothetical as this is, there are many smaller damages to your business that can occur, however if your business is insured correctly, they will never result in more than a minor setback. Hence, as a growing business, it’s not only important to know exactly how much your business is worth in order to arrive at the right insurance amount, but also monitor your valuation over time and keep updating your insurance accordingly.
Let’s sum up the numbers, shall we?
None of these numbers can be analyzed without the exact number of your business, this is the value or worth of your enterprise. Business valuation is the basis of any future transaction or estimation. It is used to set the fair market value of the shares of a business, to estimate and follow up on the budget and profits, taxation, insurance, loans and almost any other function of the company, be it qualitative or quantitative. Now this is THE number and you cannot go wrong with it because it will have a domino effect on the rest of your business. We recognized this need to continuously monitor and optimize a business’s worth and put real time Business Valuation within the reach of all business owners with BizEquity’s patented valuation platform. This platform aims to help business owners make more informed decisions by having access to real time valuation numbers and trends.
So while you get all your pieces in place and formulate a strategy, don’t forget that your product/services, the marketing plan, your financiers, insurers etc. are the army, but what you are eventually trying to protect, business value, is the King.
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The information contained in this article is general in nature and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney or a tax or financial advisor. The information in this newsletter is provided with the understanding that it does not render legal, accounting, tax or financial advice. In specific cases, clients should consult their legal, accounting, tax or financial advisor. This article is not intended to give advice or to represent our firm as being qualified to give advice in all areas of professional services. Exit Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need.
Any examples provided are hypothetical and for illustrative purposes only. Examples include fictitious names and do not represent any particular person or entity.
This is an article originally published by BizEquity., and presented to you by our firm. We appreciate your interest.