How to start planning my business finances


 

Starting an undertaking can be a great adventure and although in general we always start by designing a product or service that we are passionate about and that helps solve a problem for our potential clients, the reality is that no matter how successful we are, our entrepreneurship will not to be sustainable over time unless it is profitable and allows us to live from it.

That is why today we want to tell you how you can do to analyze the numbers of your business to understand if it is profitable and can be maintained over time.

To start, take a look at your personal finances.

You need to know how much money you need every month to live. And for that the financial tool that will help you is the personal financial budget.

In the following note we explain how to create a budget to organize your daily life and your business.

Once you put together your budget and know how much money you need every month, you can start with your business.

Economy Tip: It is very important that you keep your personal and entrepreneurial finances separate. More tips (Econs tuition in Singapore)

How to organize your business budget?

It should have the following sections.

1.Income: This is the monthly sales.

Here we recommend that you analyze how you can clearly see the sales of your business. For example, if you have a service undertaking, you could group sales by type of customer: Individuals and companies. Or if you have a product sales business we could group them by product line. Here are some examples:

•           Wholesale and retail customers

•           Customers people and companies

•           Product lines

•           Service lines

2.Fixed expenses:

They are necessary for the maintenance of your business.

They are expenses that you must pay every month for your business to continue operating. And in general, they are not related to the level of production.

Some examples are:

•           Services (Electricity, Internet, Water, Cleaning, etc.)

•           Rentals of offices, premises or warehouses

•           Professional services (accountant, lawyer, designer, etc.)

•           Salaries (here you should include your monthly salary)

•           Monthly taxes

Variable Expenses: are those that have a direct impact on the production of your business. They can vary in quantity and in the amount to be paid every month.

Some examples are:

•           Purchase of materials or raw materials

•           Hiring professional services for specific jobs

•           Travel expenses

•           Refreshments

•           Organization of events (as long as it is not the main activity of your business)

•           Bookshop

•           Legal advice for a new product or service

Once you have all this detailed information, you can start to put together the budget for your business.

It can help you understand if it is profitable, based on the following calculation:

Income - Fixed Expenses - Variable Expenses = Business Result

•           If the result of your business is positive (that is, greater than zero) it means that your business is profitable. It allows you to pay yourself a salary and cover all the necessary expenses for the usual development of the business.

•           If the Result is equal to zero it means that your business is in what is called the "break-even point", where all sales are equal to all expenses. You are not making money, but you are not losing it either because your business can cover all the necessary expenses to continue operating.

•           If the Result is less than zero it means that your business is not profitable and that if you do not make a change init (increasing sales or reducing costs) you may not be able to meet all the business expenses and that would lead you to have to close it.

As you can see, putting together a budget is a key task to know the financial situation of your business and determine if it is profitable or not and therefore if it can be maintained over time.

Finally, we share with you in the following link an example of a budget for your business so that you can start putting it together.

 

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