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It seems that everyone is involved in a startup. Without a business plan that provides useful financial projections, few startups will make it.
Economic predictions are all about logical economic assumptions, and the more persuasive your assumptions are, the higher the likelihood that you will attract the investments you need.
When you refine these logical assumptions that underpin your projections, the simpler the information becomes, and when you keep on hitting the key metrics, your startup will develop a real growth strategy.
No one should build these assumptions on their own. Accountants have specific skills that can help you when you start developing your financial assumptions.
It all starts and ends with income. If your revenue estimates are off, your profit and loss assumptions will be no good. You will be exposed to over-or under staffing, and asset purchasing will be of par. For investors, revenue is a critical metric. No one is asking for precise predictions, but your revenue predictions have to be realistic and well-motivated.
Step One Critical Inputs
Every opportunity to earn revenue is a revenue lever. It can include anything that can drive revenue, amongst other products, services, software maintenance agreements.
The first step is to identify and make a list of all the revenue levers that will produce income over the period of the financial projections.
The actions that influence how the revenue levers produce income. Each lever could have a different driver and even more than one driver. To pin these down, you have to figure out what you can do to increase or decrease revenue for each driver.
Revenue Driver Activity Assumptions
The activity assumptions are the inputs that will indicate how the revenue driver will act. To determine the premises is a team effort, and you will have to involve marketing, sales, and the CEO, depending on the specific organization.
Of course, no revenue can be calculated without pricing. Prices have to be pre-determined. If this has not been done yet, inform yourself very, very well to ensure that effective pricing methods are followed.
Business growth is the ultimate strategy to sustain your company operations. The key to achieve this objective is to link every element from your strategic plan to the creation of revenue. Linking your plan, strategy and tactics to sales will save you time and money and will make easy the management of your business. There are a few set points for the business cycle that you can anticipate and increase the chance of success of your business.
When you open your business there are multiple accounting and tax challenges. You may make mistakes selecting the incorrect company type and pay more taxes, account for expenses as deductions instead of capitalize them as assets, have no idea of the taxes to pay before year-end, forget filing taxes on time and miss getting financing from the bank in the future because filing multi-year losses. These errors can become a weakness that could repeat year after year. By incorporating a tax strategy, you can stop the cycle and make sure the numbers flow as expected.
Your business needs an effective set of systems and strategies in place and the most important system is the monthly accounting that will help you with the financial statements for the business and help you control costs and set prices and plan for taxes. Do not follow the flow of business owners who do the accounting at year-end or prefer having no accounting and tax professional help other than Google to ask questions to.
Strategic Financial Planning
You need to move from using your bank statements to manage your business to reading your business financial statements at least once a month, using financial analysis tools such as budgeting and cash flow to have a more in depth view of your business, compare with your industry standards, create your business goals and identify weaknesses and strengths with the reliance of a professional accountant to help you determine where your business is and where is it going.
Funding for Expansion
The expansion of your business is an opportunity to receive an external evaluation from the bank or investors. If you have filed your business tax returns reporting low profits or losses thru the years to pay less taxes, the bank will not lend you money. A good tax plan set up at the beginning will help you avoid this costly mistakes. In addition to pursue higher revenues, an expansion also creates realistic goals to attract new clients and give you the awareness that the growth of your business depends on the growth of a loyal customer base and reliable workforce.
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