Why do some startups succeed, while the others wind up in a death spiral? Everyone who starts a new business knows that they need to make it profitable. No new business can either run forever on savings, the investor capital and loans, so it is vital that every new business owner has a workable plan and also has a timetable for becoming profitable.
The article will give us a great detail of the steps that are to be followed by a businessman to make his business profitable . Therefore the steps that should be followed to make a startup profitable are:
Step 1 : The businessman must plan to Make a Profit from the Get-Go
When the businessman plans to make a profit from the get-go, he will need to have a roadmap that includes the steps to generate revenue and to maintain a stranglehold on costs.
In order to make a revenue plan , the businessman must quantify the following :
- As to how many customers are there?
- As to how much product will each customer buy?
- How will the businessman price his product (share of value, cost-plus, market pricing)?
- He is required to calculate the revenue by estimating monthly sales (customers x units x price)
- Businessman is also required to calculate revenue per quarter and revenue per year
In order to control the expenses, the businessman is required to understand as to how much it will cost to run his business:
- How much will it cost to produce his product (manufacturing & distribution)?
- Who will be on his management team, and how much will it cost to compensate them (equity and/or salary)?
- How many employees will the businessman need to start up, and what will it cost to compensate him (salary & medical)?
- Where will he work and how much will it cost (rent per month/year, furniture costs, utilities, & supplies)?
- How much will communication with his customers cost (computers, printers, mobile phones, internet access, website, & hosting)?
- How will he brand the business (business cards, brochures, letterhead, & signage)?
- How much will it cost to sell his product (marketing, travel, & entertainment)?
- How much will it cost for risk management and compliance (legal, accounting, & insurance)?
Then he can perform simple calculations to figure out how much money the businessman will be losing or making .
Step 2 : The businessman is required to Understand as to How Much Money he’ll Need to Reach Breakeven
Once the businessman has an understanding of his revenues and expenses, he can make monthly estimates to figure out how much cash he will need to stay afloat until he can generate positive cash flow. He should also estimate any startup costs or capital expenditures the businessman needs to make in addition to his day-to-day operating costs.
After he adds these estimates together , it will help him to know how much funding he will need before he approaches investors or lenders or decide to use his own money to bootstrap his business. The businessman is required to Make sure that he raises enough capital which he can launch and operate until he reaches breakeven. That way, the businessman won’t have to scramble to raise more funding to stay in business when he could be out selling and making more money organically.
Step 3 . The businessman is then required to take Charge of the Money and Control it:
.After launch,the businessman should not don’t hand-off his company’s financial statements until he has achieved breakeven. From day one, he must develop the discipline to generate and review the simple financial reports and the budgets on a daily and then on a weekly basis until he achieves ongoing profitability. If he knows as to how much money is flowing in and out on a regular basis, he will know if his business model is working. The numbers will keep him informed of the health of his business. When he has a clear understanding of the rhythm and the flow of his revenues and expenses and their impact on his operating budget, he can hire a qualified financial officer which the businessman can trust to help him manage his business.
To put the business on the path to profitability, here are some practices to maintain as the businessman launches and scale his startup:
- He must Make a realistic budget and operate the business within it.
- He must Have the person who does his books , gives him copies of his budget daily.
- If he has variances from the budget, he must understand why.
- He must also Understand as to how the timing of revenues and expenses affect cash flow.
To help to stick to his budget, the businessman must establish rules for himself and his employees. However Even the best-laid plans cannot include the unforeseeable challenges which come ahead , But for the most part, the deal-breaking surprises – the ones that make a startup shut down before its time however can be avoided.
This article has been contributed by Himanshu Jain CEO at LegalRaasta, an online portal for GST Registration in India