The money matters that all startups should measure

By Antonia Chitty
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What you should be measuring to make sure your business is on the road to success. Jump on board.

Profit. Loss. Cash flow forecast. Are you still with me? Business plans. Balance Sheets. Budgets. Hang in there! If you’re starting a business these words can’t just be jargon, they need to be something you take to heart. Whether you’re aiming high and need to show how the business is doing to the bank or investors, or you are simply trying to keep track of how your micro business is doing, make spreadsheets your friend.

Top tip: Don’t be afraid of Excel. If you’re no maths genius get a mate to show you how to create formulae in Excel and it will do all your sums for you. You can find online tutorials for all sorts of excel functions here and here.

If you are running a tiny start up, just you and your laptop perhaps, or selling a few items on Etsy you may be tempted to skip this article. I know that I had no idea about business finance when I started out. Do yourself a favour, though, and read on. While your business is at its infant stage, now is the perfect time to learn the basics of business finance. Setting up a spreadsheet is relatively simple when you only have a few figures to input, and as your business grows you’ll be able to stay on top of your profitability. But, I hear you ask, what do I put in that spreadsheet you keep mentioning?

Ah. Well. It’s more than one spreadsheet. Read on to find out about some of the different figures you need to be tracking and how to do it.

Profit and Loss

Profit and loss is just what it sounds like: a document listing the money in and money out of your business. This will include sales made, and the costs of making the sale, including staff, materials and premises if you have them. Profit and loss will help you work out how your business does each year, and you can compare year to year or month to month to look for trends. You can see an example of a profit and loss statement here. There’s also a useful template of a profit and loss statement here to enable you to build your own one. Profit sounds great, and all you need to know, but in fact there is another equally important factor to measure: cash flow.

Cash flow forecast

This is critical to ensure that your business will always be able to cover the bills. You can create a projected cash flow, estimating when money will come in and when you need to pay it out. If you want investment for your business you’ll need to show that your cash flow forecast will work. If there are months where you need to pay out more than you have coming in you can plan ahead and see if you can cover it with contingency funds or whether you need to seek out a loan or overdraft.

For example, you may have lots of assets because you’ve recently bought materials, but you can’t turn that into profit until you have processed the materials. A situation like this can cause issues with cash flow.  You can’t pay your suppliers, so you run out of things to sell and, kaboom, your business is bust. Don’t panic, though. Use the cash flow forecast to help you set payment terms. If you know you need customers to pay within 30 days, include that in the invoice to help avoid problems with cash flow. Intrigued? Find out more here. 

Balance sheet

A balance sheet shows what your business owns and what it owes. Broadly speaking, you need to ensure that you own more than you owe, or your business risks going bust. Short term imbalances are find, but in the longer term, it’s risky business. Fundamentally,  your business is doing well if it owns more than it owes. If you start owing more than you own you could be heading for trouble. Keep your balance sheet up to date and avoid finding out your business has debts it can’t pay when it’s too late to do anything. You can check out an example balance sheet here and there is a template here to get you started. Read more about balance sheets here.

Still panicking? We’ve got your back. Here's our handy jargon busting plugin to answer your worries. And why not watch this video from Olivia who has started her own shop, with help from the Princes Trust. She talks about her own fear of maths and how she got advice to help her with her business plan and finances. I’ve discovered a range of spreadsheets to download at SmallBusinessCan which could save you time and effort. There are more business finance spreadsheet templates to download via the Princes Trust site, so there’s no excuse not to get started. Do check that they suit you and your business, but a ready-made spreadsheet can get you up and running, and you’ll learn more about what your own business needs as it grows. Always ask an accountant for advice if you’re out of your depth.

A personal top takeaway

And to end with some personal advice, I’ve learnt to love spreadsheets. I use an accounts package (you can find them via sites like Sage, Quickbooks, Crunch or Kashflow) and it does a lot of the work for me. I invoice after every piece of work is done. I tried saving up invoicing and doing it once a month but I lost track! I keep all my receipts and have a bookkeeper who enters receipts and tallies everything up with my bank statements. Doing your business finances can seem daunting at first but follow some of the tips in this article, stick at it, and ask for help if you need.

 

Author bio: Antonia Chitty is an award winning entrepreneur and author of books on business and enterprise. She blogs at www.familyfriendlyworking.co.uk Her latest books include Blogging: The Essential Guide (Need2Know) and Making Money Online (Hale Books).

 

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