Master Your Financials

Optimize Your Entrepreneurial Brain Series

 

 

The devil is in the details, as the saying goes – and that's doubly true when it comes to a successful startup launch. Entrepreneurs with big ideas often quail at getting mired in the numbers and would rather hand off financials and execution planning to their teams. But an in-depth understanding of the numbers behind your heady profit projections will benefit you and the company in the long run; you'll be better equipped to defend and adjust them as needed.

Of course, overly conservative financial estimates can dissuade investors from funding your business – if you aren't going to make much money, what's the point? But overall, it's better to take off the rose-colored glasses, put on an accountant's green visor, and delve into the specifics of how you'll get from business plan to launch.  Among the bases to cover:

 

Build a solid set of justified financials

The chief way to stay on target is to have one in the first place – in the form of solid financials based on justified assumptions, not guesswork.

It's shocking just how many entrepreneurs launch businesses without a set of financial reports to guide them. These numbers aren't just essential for winning investment funding; financials give you a set of benchmarks by which to monitor your progress, adjust your strategies, and keep track of your all-important cash flow. In fact, a lack of financials – not a lack of sales – is what drives most unsuccessful businesses to fail.

Of course, the financials can only be useful if they're based in reality, not guesswork. That's where the "justified assumptions" come in. Rather than plucking sales estimates and cost projections out of thin air, substantiate them with industry research, competitor data, salary information, and actual marketing and advertising rates. By taking the time to build formulas based on real-world numbers, your financials will be worth using and, after launch, updating with actual sales and performance data. Constant analysis and revision can help keep assumptions valid.

If you tend to avoid numbers, enlist the help of a trusted mentor or professional. But make no mistake; you personally must take ownership of the financials in order to make informed decisions about your company.

 

Build in room for delays and overruns

It's a well-known rule in business planning: everything takes twice as long and costs twice as much as you might guess. While adding such a large margin of error for every aspect of your execution plan may not be helpful, you should understand which stages of the launch process are most likely to contain glitches and detours, and model expenses accordingly. Similarly, understanding the range of potential earnings – from wildly optimistic to worst-case conservative – can help you identify the most likely accurate middle ground.

 

The Optimizing Your Entrepreneurial Brain Series

This is part of a series of posts that provide entrepreneurs with real world lessons learned to help them be more effective at running and growing their businesses.