Financial Fundamentals / That Will Ensure Your Business Success

Financial Fundamentals
Views: 1244Views: 1245
Read Time:8 Minute, 1 Second

Financial fundamentals.

Do you want to ensure the financial success of your business? You need to do certain basic things in order to lay a strong foundation for your enterprise.

Here we have discussed some of those financial fundamentals that will ensure your business success.

1) Make a budget and stick to it.

Budgets can be tight, but if you make a realistic plan and follow it closely, you’ll be in much better shape financially. The main reason to follow a budget is for saving.

If you don’t, you may begin to wonder where all your money goes and, as a result, find yourself spending more than before.

The budget will help you in multiple ways. Some of them are

1. Breaking your expenses into fixed and variable.

2. Help you to save money for unforeseen events. Like if your employee gets sick or if
you need new equipment etc.

3. Provide a good idea of where the profit is coming from in the business. “How much
does each product cost & how it can be improved”.

4. Help you to earn more. “How much do you need to sell for each product.”

5. You can manage your supply chain in a better way with this budgeting method.

2) Hire professionals.

The most important thing you can do for your business is to take advantage of the experts available to help businesses succeed, including accountants, lawyers, and bankers.

Accountants can provide valuable information about how to handle your finances, while a good lawyer will have the inside track on how to keep you out of trouble with state and federal agencies.

3) Get a loan when needed.

It is possible that as your business grows, it needs more money than you have on hand to finance its growth.

Even if it doesn’t require that much now, another year or two down the road, it might very well need a cash infusion. In this case, one option is to get a loan from a bank or other lending institution.

4) Do market research before you launch.

How do you know if there’s going to be enough interest in your product or service? The best way is by doing market research.

If you want to do it on your own, go online and search for information about the kind of product or service you plan to offer. You can also ask people who are likely to buy what they think of your idea.

Market Research is a time taking process, but it’s worth doing because it helps business owners in many ways like

1) To know the interest level of customers in their new product/service.

2) Helps them to improve their product according to customer needs. If they find any
new feature which is missing from their product, they can easily implement that according to market research. Also, this analysis will make clear which product has more demand in the market.

3) Helps them to choose the right time for launching the product/service, which means it’ll inform when business should make their move towards the market.
4) Helps them to get an idea about which price they should charge from customers.

Because there are many factors that need to take into consideration while deciding on a suitable price for any business product/service, like costs, competitors’ pricing, etc.

We know that every 7 out of 10 people buy one company’s products and leave the other because of its pricing policy.

So you should definitely select a wise option among these two options by doing a good research on both sides according to the current market scenario.

5) Make sure your financial documents are organized.

Make sure your financial documents are organized and easily accessible
Keeping track of sales and expenses can be difficult without proper organization tools such as an accounting software package or spreadsheet program.

Keeping your financial records organized will make it easier to identify where there might be errors or problems.

Another way for this is online tools like “TRELLO” which is very good for Trello board, checklists, file sharing, and more all on your virtual desktop. You can also use cloud storage services like DROPBOX & BOX.

6) Know basic terms.

If you want to be in business for a longer duration of time, you have to learn the basic terms of finance. Here is the breakdown of some common finance terms.
1. Compound Interest

Compound interest is the interest applied to both the principal and the interest of a deposit, credit line, or loan.

This essentially means that if you borrow money and then reinvest it at a stated rate of return, your profits will be significantly higher because not only are you earning on the original amount but also on all previous returns.

2. Margin

When an investor uses margin in his investments, he is basically borrowing funds from a broker to finance a portion of his investment position.

In other words, when you have already used up all your cash in buying stocks, bonds, and mutual fund shares but still want to invest more in them at this point you can do so by using the margin facility provided by the brokerage firm which as a facilitator in this case.

3. ROI/ROCE/ROA

These three ratios essentially measure a company’s profitability and efficiency, respectively.

They accomplish this by comparing a company’s net income with the total capital employed by the business, which is used to generate that income.

The resulting ratio indicates how well management converts sales revenue into net profits.

For example, return on assets (ROA) measures how much income is earned for each dollar of assets at a company, while return on capital employed (ROCE) provides a similar comparison but places greater emphasis on equity as opposed to debt.

Return on investment (ROI) focuses strictly on the amount of money invested in a project or asset and how much it generates in profit compared to that investment.

4. Futures Contracts.

Futures contracts are standardized agreements between two parties to buy or sell an asset at a predetermined price on a set date in the future.

They are used primarily by investors to speculate on price movements of assets such as commodities, equities, currencies, and interest rates.

5. Option Contracts.

An option contract is basically what it sounds like: an agreement that gives its owner the opportunity, but not the obligation, to buy or sell certain financial instruments, currencies, or commodities at some point in time before it expires.

The buyer pays the seller of this contract for this right, giving them added incentive to fulfil their side of the deal because they don’t want it to expire worthless, which would mean only losing out on the money they spent on buying the contract.

7)Create a business plan.

With a business plan, you can find out if there is enough demand for your product or service, whether it is something people will actually pay for.

Creating a business plan is also very important in managing your business. It will help you to manage time, money & resources better.

The best way to create a business plan is to write one yourself, college students can ask for free help from their teachers, or online tutorials are also available.

8)Develop an exit strategy.

An exit strategy is a strategy that you develop in order to determine how much money you would like to make with your business venture and when you plan on selling it.

Exit strategies vary because every person has different goals when starting a new business.

If you want to work in a partnership, an exit strategy is twice important, it helps partners to decide when they want to stop their partnership.

9) Watch for signs of fraud.

Fraud isn’t always easy to spot. Most white-collar criminals are very deceptive and use sophisticated ways to cover their tracks or dupe investors who believe they are receiving good returns on their investment with real estate, stocks, artwork, etc.

A few red flags include:

Not receiving interest payments when promised

Difficulty getting profits out of the account that the money was invested in

Unlicensed broker-dealers

Brokers asking for large deposits with no documentation required

Hidden fees or frequent changes in contract terms

Business transactions with foreign countries are known for economic fraud (especially in countries without any banking regulations)

It’s always better safe than sorry. Never fall into these honeypots.

These may seem very interesting and charming but at the end of the day, all they want is your money.

10) Use the right type of contract.

Contracts may differ depending on what you are trying to buy or sell, but some basic types include:

Supply agreement

Service agreement

Sale Agreement (products)

Sale Agreement (services)

Sales Representative Agreement & Distribution Agreements.

All of them have different terms, conditions, and clauses.

One of the most important things to remember is that you should never sign a contract without reading these terms carefully.

If there’s something that doesn’t make sense to you, ask questions.
Conclusion:
Building a business is no child’s play. You have to be really dedicated and smart in order to become successful at it.

Creativity is an important key to success, and you can’t be afraid of taking risks because if there are no chances for failure, there are no chances for success either.

Lastly, always remember to make your exit strategy before starting any new business, don’t get burned.
Good Luck!

Financial Fundamentals

Financial Fundamentals

Financial Fundamentals

Financial Fundamentals

Financial Fundamentals

Financial Fundamentals

Financial Fundamentals

Financial Fundamentals

Financial Fundamentals

Financial Fundamentals

Happy
Happy
0 %
Sad
Sad
0 %
Excited
Excited
0 %
Sleepy
Sleepy
0 %
Angry
Angry
0 %
Surprise
Surprise
0 %
%d bloggers like this: