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The following article was published in our article directory on July 27, 2016.
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Financial Management: Putting up a Profitable Small Business

Article Category: Business

Author Name: Theodore Henderson

Putting up a business is not just about producing an innovative product and selling it to the market. Business is all about numbers. Even if your product is selling like pancakes, if the numbers are not doing well, it still misses the point of its existence.

Now, what does it mean by numbers doing well? Numbers are all about the figures shown in your financial statements. These include your revenue, expenses and profit, and how well you manage them.

Financial literacy in business is important, so here are some things you should know about running a small business.

Streams of revenue

Revenue, in layman�s terms, is the amount you get from your sales. This is the cash, which flows into your business, or in other words, cash inflow. This may come from the direct sales of your product/service, and other sources like rentals, side offers, among others. The most important thing that you need to do about revenue is to ensure that it remains constant, and that it meets your target.

You can compute your revenue by multiplying the number of units sold by the SRP or suggested retail price. For instance, if you are selling cupcakes at $2.00 each and you sold 60 cupcakes in a month, then that means that your revenue is $120.00 for that month. Deduct your operating and other expenses in that amount and you get your net profit.

Managing your OpEx

OpEx or operating expenses, is the amount you deduct from your sales so you can determine the actual revenue that you get. Your revenue may be high in terms of amount, but your OpEx must always be lower. If it�s the opposite, that means your business is not profitable and is in fact, incurring losses. Managing OpEx requires you to find ways to diminish your fixed and variable costs, including raw materials, utility bills, and other fees incurred.

However, it is generally accepted to have high OpEx during the first few months of operation. A newly established small business is expected to incur losses at first, and is often given a period to recover and earn enough to compensate with the high expenses.

Improving your margin

What�s left when you subtract your OpEx from your sales is the contribution margin. Margin, often measured in percentage, computed by dividing your margin by your total revenue, is the measure of how profitable your business is. Depending on the type of business, a normal range is around 15-20%.

Long term goals

Now that you know the fundamentals of the financial aspect of putting up a small business, you need to set long-term financial goals. This typically translates to putting up a high margin in the long run. If your CM is currently at 12%, you should aim to achieve 20% in the next ten years, for instance, depending on your desired pace. You can achieve this by either increasing your revenue, decreasing your OpEx, or simultaneously doing both.

Once you get the hang of managing your business on the financial aspect, all you need to do is to create a plan on how to achieve your target financial numbers. You can achieve this by focusing on operations and marketing aspects of your business.

Keywords: starting a business, business start up, launching a business, entrepreneur, entrepreneurship, small business, small biz, home business, home based business, small business success

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