Entrepreneurs Need to Understand Their Numbers to Succeed
Aug 18, 2021 by Roger Scherping
Sadly, one of every two startup businesses fails within the first three years. But it’s possible to increase your odds by more than 50%. The number one criterion that separates successful startups from failed startups is this: Understanding the numbers of your business.
Think about this. You know what you’re going to sell. You know who your customers will be, and you know how you’re going to market. But are you confident you’re charging enough? What will your startup costs come to? How much cash do you need to get started? How long will it be before you start making a profit?
For a non-financial person, these are difficult questions to answer. Many entrepreneurs just launch their business and hope for the best. Unfortunately, they often end up in that 50% that don’t succeed.
The reasons to understand the numbers of your business are many.
- Charge enough! Many entrepreneurs make the mistake of not charging enough for their product or service. They pick their prices based on what the competition is charging – and then they usually charge less! They do this without understanding whether their prices will cover their overhead and return them an adequate profit.
- Don’t run out of cash! You’ll need cash for your startup expenses and for your overhead expenses until you start generating a positive cash flow. Entrepreneurs who start a business not understanding how much cash they will need are headed for trouble. Getting too much cash up front means giving up too much equity or paying too much in interest. Not getting enough cash means giving up additional equity at a time when the business is struggling – an expensive proposition.
- Maximize your profit! You need to understand what your overhead costs are and the impact they have on your profit. Then you can make adjustments and spend wisely to generate the profit you need.
- Anticipate problems! It’s much easier to deal with a problem ahead of time. Entrepreneurs who can see ahead and understand where the financial pitfalls lie can plan for and avoid them.
- Have a plan! Do you ever get in your car and start driving without a destination in mind? Of course not. It’s the same with your business. Have a financial plan that tells you where you expect to be each month and measure your progress against that plan to see how you’re doing.
- Talk to bankers or investors! Talking to a potential money source requires detailed financial projections for 24 months out. You need to be able to present projected income statements, cash flow statements, and balance sheets if you’re looking to raise money for your startup.
Most entrepreneurs find it difficult to answer questions about pricing, costs, cash, and financial projections. You’re starting a business to change the world, not to do accounting. So answering these questions usually meant creating your own spreadsheet, finding a financial person to create one for you, or consulting an expensive CPA. There’s a better alternative.
ProjectionSmart will help the startup entrepreneur understand the numbers of his or her business in just 15 minutes. At ProjectionSmart we’ve taken care of all of the accounting for you. You just tell us:
- What you’re going to sell and your price and cost
- What your monthly overhead costs are
- What your startup costs are
- Where your financing will come from
ProjectionSmart will then prepare a complete two-year financial projection for your business. You’ll see if your business concept makes sense. You’ll see what your profit and cash flow look like.
But that’s just the start of understanding the numbers of your business. ProjectionSmart is completely interactive. You can change any of your inputs and immediately see the impact of the change. Not making enough profit? Adjust your pricing and see what the model says. Still not happy? Change your monthly overhead.
ProjectionSmart will help you understand the numbers of your business so that you end up in the 50% of startups that succeed!
Originally published Mar 04, 2019