Be on top of your financials – FROM DAY ZERO
This one is from my personal experience, having started 4 companies in the past.
I’ve noticed that people tend to ignore some of the business expenses thinking they are too small to take into consideration. When you add up all these expenses, you realize that they are as significant as other expenses and must be taken into account while calculating your profit margins.
Just to give an example for a few of these expenses:
- Bookkeeping – this one is often ignored but every business must have a bookkeeper and an accountant that does the yearly reports. On a yearly basis, the cost of bookkeeping can easily reach $5000 for small businesses and much more than that for a larger business (companies with +$100M in revenues usually pay well over $1M for bookkeeping and annual reports)
- VAT – When you’re selling domestically, you must pay VAT. In the UK, for example, VAT is 20%. If you plan to have a 20% margin on your sales and forget to take into account the VAT, then you’re already losing money without even realizing it.
Always take into account every monthly and yearly expense. If it’s a yearly expense, then simply divide by 12 and you’ll get the corresponding monthly expense.
For example: if you pay $2400 for an annual report, it’s $200 per month.
Check your financials on a monthly basis
By understanding your monthly revenue and expenses, you will be able to have a clear idea of how your funds are spent and whether you have to take any action in case you’re losing money.
It will also allow you to quickly see where you can increase or decrease expenses.
If you have earned $5000 at the end of the month, then maybe you can increase your marketing budget to hopefully earn more next month (applicable when you are ROI positive on your marketing efforts).