Why All Entrepreneurs Must Learn the Rules of the Game
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 transforming traditional business landscapes. However, with 50% of start-ups closing before reaching the five-year mark, many budding entrepreneurs are deterred by the challenge of understanding the critical numbers. Numbers are the building blocks of a successful business.
Mastering the art of reading and interpreting numbers is essential for business success. If you can’t make the numbers work for you, even the best idea won’t reach its full potential. Here are some key numbers you need to evaluate to build a strong, viable, and successful business:
- Seed Capital As you sow, so shall you reap. Carefully consider the capital you need to invest in your business, as this will initiate the chain reaction for everything that follows. Assess your marketing plan, competitors’ positioning, potential risks, and profitability to determine how much money you can safely invest. Crowdfunding platforms like Kickstarter can help gauge the market and raise capital.
- Projections This involves creating a yearly budget and estimating profit. Important factors to consider include raw materials or capital costs, labor charges, buffer, taxes, rent, maintenance, other unaccounted costs, and the inflow and outflow of both workforce and finances. Remember, while these projections provide guidance, they are estimates and not set in stone. They help navigate and grow your business.
- Debt Maintaining steady cash flow often requires substantial reliance on debt, especially for new businesses. Debt includes loans from banks, investors, or other institutions that must be repaid with interest over time. Loans can also come from alternative sources like accountants or credit unions. It’s advisable to split your loan amount between multiple sources to prevent any single lender from overpowering your business.
- Assurance Imagine a spark in your factory’s motor room causes significant damage. Hypothetical as it may be, smaller damages can occur, but with proper insurance, they become minor setbacks. Knowing your business’s worth is crucial for determining the right insurance amount and keeping it updated over time. Complete Business Valuation helps you learn your business’s value and monitor it over time, ensuring you have the right insurance coverage. You can learn more about the process here.
- Summing Up the Numbers None of these numbers can be analyzed without knowing your business’s exact value. Business valuation is the basis for any future transaction or estimation, setting the fair market value of shares, budgeting, profit estimation, taxation, insurance, loans, and other functions. This is the critical number that impacts all aspects of your business. Complete Business Valuation’s patented valuation platform enables real-time business valuation, helping business owners make informed decisions with access to real-time valuation numbers and trends.
As you put all your pieces in place and formulate a strategy, remember that your product/services, marketing plan, financiers, and insurers are the army, but the business value is the king.
Start your business valuation with Complete Business Valuation and access a dashboard and 29-page report in less than 10 minutes.