If you are a person who is about to start a new business or already have experience starting organizations, taking care of your personal and business finances is extremely important. Having good financial management will give you the necessary solvency to overcome the challenges that small businesses face.
Importance of good finances for entrepreneurs
Good financial practices guarantee the long-term viability of the business to be undertaken . Maintaining good resource management will allow you to resist economic challenges and adapt to market changes.
Furthermore, if you are looking for financing to get your business off the ground, investors and business partners look for companies with solid financial management , so having transparent and documented practices will increase confidence in potential investors, making it easier to obtain the financial resources to achieve your goals. goals.
Good finances help ensure sufficient liquidity for operating expenses , so that you maintain a good reputation with the market, positively impacting the overall perception of the brand .
Take into account that it is necessary to establish clear and measurable financial goals to maintain sustainable growth. By implementing sound financial practices, you will be able to monitor progress and adjust your strategies as necessary.
Therefore, below we share with you a series of financial tips that all entrepreneurs should consider to take your business to the next level and see it grow.
Finance tips for entrepreneurs
Even though one knows the importance of having good financial management, many entrepreneurs do not know where to start. It is known that when starting a business, there are key factors such as defining your brand, polishing the business idea, finding your market segment, among others .
But good financial practices , as we have mentioned, are one of the fundamental pillars in establishing a new company. At Siigo Aspel we want to see you succeed, that’s why we share 9 financial tips with you .
Know the environment and stay updated
In the business and financial world, it is necessary to be aware of all those factors that can affect, directly and indirectly, your company . So you must pay attention to all the changes that occur and follow the trends.
For example, stay up to date on legislative issues and regulations , reforms that occur in the financial sector and support programs that can help you. Likewise, it is important to inform yourself about the global economic panorama , analyzing it and creating strategies that work in your favor. It will also help you to know the economic situation and prevent any challenge that may arise in the economy of your market.
Establish an emergency fund
Anticipate any calamity, prepare an emergency resource fund that is available in case your company faces a period of “lean times.”
From your income, reserve a certain amount that becomes that exclusive capital for situations beyond your control, such as a health emergency.
Although, when starting your company, you may feel that all your income is going to replace the investment or reinvest in the business; But, by putting together the correct financial strategies , you will see a solidification in your economy and a flow that will allow you to create this emergency fund.
Analyze your fixed expenses and your variable expenses
Take some time to do an analysis of your monthly fixed and variable expenses , to get an idea of how much money you need to cover the company’s needs. In addition, it will help you identify your unnecessary expenses, but we will delve a little deeper into them in the next point.
Ideally, your income should be greater than your expenses , therefore, knowing the company’s situation in this context will allow you to plan better and find areas of opportunity for cost reduction.
Create an expense budget
Now, when it comes to financial management, it is important to make an expense budget to plan how you will use the money. In this way, you force yourself to analyze expenses and find those that do not have to be every month or open a conversation with your suppliers to establish better prices.
By having a well-established budget, you prioritize expenses and avoid leaks in your capital . Within your budget you must set your goals, considering a percentage for your emergency fund, and calculate fixed expenses , taking into account payments for services, input costs, and even the payment of taxes.
Carefully analyze your budget and prevent expenses from exceeding your income , this can cause unnecessary debt.
Set a monthly savings
Closely linked to the budget and the emergency fund, we have monthly savings . Always keep in mind a percentage of income that goes toward savings , try to keep this independent of the emergency fund .
Establish very well what you will cover with the emergency fund and where the monthly savings will be allocated, it can be for machinery repair, investment in technological programs to improve operational efficiency, among others. If during the month it was not necessary to use the amount, you can consider letting it accumulate or reinvesting it in your company , so that you maintain cash flow.
Analyze your debt capacity
However, before applying for any credit or loan, analyze and calculate your debt capacity . Consider not taking credits that exceed your total assets .
To calculate your debt capacity, you can add your monthly fixed expenses, subtract them from your total monthly income and multiply it by 35%.
Establish financial indicators
Sometimes, entrepreneurs lose sight of establishing metrics that reflect the company’s results over a period of time. But it is extremely important to establish financial indicators that allow you to track the performance of your business in order to analyze it, so that you can make adjustments as necessary.
The objective of the indicators is that you can find the best risk-benefit ratio for the profitability of your shares. They will allow you to analyze based on liquidity, solvency, efficiency, debt, etc.
5 basic financial indicators for entrepreneurs are:
Contribution margin:
You will be able to know the efficiency of your company to generate products or services based on variable costs. It will allow you to identify the most profitable products and the ideal sales value to generate profitability.
To determine the contribution margin you must subtract the income, deductions and direct costs, and multiply the result by 100 .
Breakeven:
It will let you know how much you need to sell to cover costs and expenses. His formula consists of dividing fixed expenses by the contribution margin .
Net margin:
It will allow you to know the liquidity of each unit of product to sell. The higher the net margin, the higher the profit.
Current liquidity:
With current liquidity, you will be able to know your company’s ability to meet short-term obligations.
To get it you must divide your current assets by current liabilities . Take into account that the first is an asset that can easily be converted into liquidity; while the current liability is a debt that you must pay off in less than a year.
Set prices according to costs
Many entrepreneurs base themselves on the prices that other businesses use for the sale of products similar or the same as those they handle, but before following their steps, it is necessary that you calculate your costs (of raw materials, production, etc.) to be able to Set a price that allows you to see a profit.
