Meeting your business financial needs
August 17, 2018
Contributed by Independent Bank
Analyzing the Data
How to meet your business financial goals
If you decide to open a business, the process involves creating a plan for success. This plan, however, cannot be some vague or intangible notion of “doing well” or “making it work.” Rather, you should set and strive to meet concrete business goals that will both create milestones and identify clearly whether you are doing what you need to do. Analyzing and understanding your performance data provides a critical step toward identifying your level of business success.
Determine What You Need
This step may be obvious, but far too many businesses start with hopes and dreams, rather than a baseline level of success. You need to identify the costs required for your business to operate: equipment, staff, inventory, building costs, marketing, and infrastructure, at a minimum. Each of these comes at some expense to you, so you have to make enough to meet all of them.
Beyond this, will you take a salary or a distribution of profits? How much will you need to reinvest in the business to continue and grow to where you want to be? These too represent financial needs. For you to operate a business full-time, you need enough to both run the business and pay for your personal expenses. Crunch the numbers, and you can come up with baseline business goals: what you need to survive and continue to operate.
Meeting this baseline goal will keep you going—a critical level to reach, and one most businesses miss early on. You didn’t go into business to get by, though, so the next milestone you should reach is a profit goal. How much do you want to make above subsistence level? And more importantly, what is your path to reach that goal?
Your profit, on the most basic level, is the amount by which your revenues exceed your costs, but you can break it down further to create a path forward. When you examine all of your costs, you can arrive at a per unit cost. This can include purchase and/or assembly or preparation of goods, or your cost to provide each service you offer. You then must examine pricing for similar products or services to determine market value. The more you can drive your costs down, the more margin, and therefore, the more profit you can build into your pricing. Your business goals should take a realistic assessment into account, both of what margin you can reach and how many units you can sell, to determine a makeable target.
Your business goals should rise as you learn to improve on what you do. Every new business makes mistakes and misses opportunities. For this reason, your goals should build each year. You will learn to source better and operate less expensively, to market more efficiently, and to improve the product or service itself. Every year—if not more often—analyze your costs, margins, volume, and profits. Look at directional trends and learn when and why you did better versus the times you fell off.
The best businesses evolve and create new business goals as soon as they start to achieve success. By tracking and analyzing your costs and revenues, you can keep your finger on the pulse of your performance, and meet bigger and better goals every year.