I am tired of talking to entrepreneurs who have very good ideas with great monetization potential. Many are extraordinary ideas that could even impact the market, change consumer habits and become millionaire businesses. The common denominator in many of them is their passion, the excitement of doing a great business, the illusion of satisfying a need and that they have limited financial knowledge.
Like everything in life, money plays a determining role in the birth, development and death of a project. Therefore, every sensible entrepreneur with a serious intention to prosper must acquire some knowledge and skills in finance and money management before starting his project. Failure to do so implies that the commercial project will have its days numbered and that the entrepreneur will have a high probability of facing a loss of money, of his time and even of his hopes.
You must understand the value of money over time (present and future) and the inflationary phenomenon with its direct impact on the global economy, your country and your project. Clear financial projections are decisive, and making mistakes could sentence your project to death. Conversely, being assertive from a financial point of view will facilitate the fluidity and development of your venture.
To avoid being caught off guard, first of all, when you undertake with discipline you must know how to control income and expenses efficiently and transparently. You must separate your personal economy from the economy of your business, because even if you find it hard to believe, they are not the same. Making realistic sales projections and cost estimates is vital. It is obvious that if you spend more money than you manage to collect for the different forms of income of your business model, you will be on the path of falling into a lack of liquidity and later in debt. But that is not all.
It is essential that you know the investments that you will need to make and the periods in which they must be made, the sources of initial financing, the necessary working capital, the faithful cash flow, or at least as exact as possible, that you can understand and control. inventory turnover and your priorities.
You should also analyze a possible leverage or bank loan and define the payment capacity of your business, understand very well the different interest rates and their impact on your business, know the risks and benefits of a currency devaluation, know the profitability indices, efficiency, liquidity, solvency, break-even point, the internal rate of return, the capital recovery time, the valuation methods of the current and new edges of the business, and strategically you have to know how to program the debts to pay and to collect.
Having notions about financial statements such as the balance sheet and the profit and loss statement will allow you to see in a kind of financial x-ray, which is the economic performance of your business. In this way, you already know that it is not an academic requirement, but a tool to monitor your management and to survive.
To properly size the potential of your business you need to understand the value of tangible assets, well known to all as fixed and current assets, but above all make sure you understand the value of intangible assets, such as trademarks, copyrights, patents, secrets industrial, developing technology, know-how, track record and reputation and experience, among others.
You must also know the tax and labor obligations of your business and, therefore, the impact that the payment of national and municipal taxes will have on the economic performance of the project, in addition to labor liabilities.
Based on the knowledge and analysis of all these elements, as an entrepreneur you will be making decisions permanently. Keep in mind that when the desire to undertake is combined with ignorance, improvisation and inexperience, the chances of making mistakes increase. The downside is that in business mistakes are often very costly in financial terms.
My professional recommendation is that you read daily about finances, so that you become familiar with and document yourself on the subject, and if possible, sign up for a workshop or course on finance for non-finance or finance for entrepreneurs. If you do, in no time you will leave behind the time when you compared your business finances with high school trigonometry.
