Special Report: Business in Todays Market

  　 
Challenges are plentiful in any business type today. No one has it easy. We will discuss structures indigenous to preventing insolvency. 

  

Many start endeavors lacking proper capital and this is contributive to early failure. This is primarily because the entrepreneur has great trust in his own ability to generate business quickly and whenever he needs to. It is always wise to double the amount of capital you think you will need to get you to turn-a-round point.

Some start a business because the new owner likes the product or service or has worked in a similar business.  The functional knowledge he is starting with is somewhat limited. It is also common to underestimate the depth of capital that will be needed as well as how long it may take to pay it back once at breakeven point.

 

From the first day your project is started – capital drain will begin. Do as much as you can yourself. Don’t start with everything you think you need right away.  The important thing is to ring the cash register as soon as possible. If you are one that thinks that things must be Perfect and First Class, even before you start – get some reality advice.

 

Remember, your service may be slower and your quality may have a few glitches, so allow extra time to get first sales done properly.
 

Turnover- you must turn over your cash. Make a sale – make a deposit – buy the next one – make a sale – make a deposit. Profiting enough to pay bills depends on you depositing the money every time and not spending that money on anything else. Remember the sale returns to you the cost that you spent to buy the product and that overage is profit – but hold it. The sale is not the profit. Profit is the amount of excess you returned past the cost of the product.

Profit is not pure profit yet – it is then used to return the business expense you had to spend to get the store to attract the customer to make the sale. After everything is returned and all bills are paid – that is the profit. The secret is to sell for enough money or have enough sales to even pay down the debt.

This is money you spent (of yours) or borrowed. Debt must be reduced to attain equity. A debt that is real, (but is seldom calculated) is the amount of income you lose (by not collecting a paycheck) for the time you work to get this business on its feet. Building debt will break you. Plan for debt retirement in every budget.

 

Consult a CPA to furnish you with a P&L every month. Reports every quarter would leave you less time to correct problems. If you have a problem you need to work on it the very next week. Learn how to read a financial statement will keep to aware and reactive.

 

Check your markup percentages frequently. Adding a third of the cost item to the cost item won’t get you a 33% or gross. That is only 25% profit of the sale. Gross profit is based in what % of profit you received of what you collected (or sold it for). Don’t be so willing to be the lowest price on the block – just not the highest. (Unless, of course, no- one else has what you have). 

  

How much of your business you really own will depend on how much of your spent capital you can earn back. It is vital to explain here that there are several business platforms and some will encourage you to carry debt and let future increases in sales pay it off. They recommend leveraging your assets (borrow against them). That has been a great capital producer but 2008 brought us back to reality. Tapping equity for expansion is ok as long as the business index stays the same. When it dips drastically, leveraging will beat you up.

 

Insurance is available for protection against loss but not without exceptions. Most insurance will cover you as described in the policy and with the exceptions listed in the policy. READ IT. Mechanics not employed by you are not insured. Employees with drug problems are not to drive customer or your vehicles. Beer cans in the trash after a fire will cause you problems. Unreported theft or poor security will get you eating your loss.

 

You need to keep a daily running total of sales – week to date, month to date and year to date. It will allow you to see how much profit or loss process is occurring daily and weekly in order for you to make the changes necessary. What is true breakeven? It is what’s left after all levels of expenses have been paid. 

  

Go through known expenses and total the composite. Stay on budget. It is essential to know how many sales you need and are getting and what you are expending weekly and monthly and what profit you have targeted.

Work out the goals and adjust everything to make it work. If you have $6,000 in expenses this month and your last month margin of gross profit is 30%of sales – then you need $20,000 in sales at that same profit to breakeven.

A higher profit, higher sales or fewer expenses will all produce more bottom line. If you don’t do the numbers you have to guess and most of the time it will be wrong.

 

If you have 30 days in this month –less 4 Saturdays = 26 working days divided into $20,000. = $769.23. This amount is needed in sales (no taxes included) every one of those 26 days. If you want a profit – increase what you can control. 

  

A Simple reminder, although you handle $20,000 a month, only $6000.00 Is yours to direct. And it must pay the bills and payroll. $ 6000.00 Divided by 26 = $230.76 per day is the expense amount you need from all your sales, that you must generate every working day for just expenses! How much extra will you make?

Author: Ray Hauenstein