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Knowing your numbers is the key to your start-up’s success

Last week, I caught up with a successful Canberra-based sportswear retail entrepreneur. We were thrilled when we discovered that our businesses shared so many similarities—we both started our businesses from the ground up and had developed them to become multi-million-dollar enterprises within five years.

Financial services for startup

When sharing about the challenges we faced as business owners, I was glad that my counterpart had learned the importance of bookkeeping and understanding the numbers in his business. He recalled that one of his biggest mistakes was to hire a low-cost bookkeeper and to outsource all finance-related matters to the bookkeeper, thinking that it wasn’t his job to know and understand the numbers. This is a common pitfall among most entrepreneurs. Yet when they start to track and understand the numbers, many entrepreneurs see a rise in their sales and profits.

Knowing your number – understanding your business

Start-up businesses exist in different development stages―some entrepreneurs are working on turning a bright idea into a business, some have already started selling their idea and raising capital for growth. It doesn’t matter which stage your business is at, planning ahead helps your business to chart a course for the achievement of goals. And a good business plan depends on numbers to make it concrete, because some things can’t be explained with words alone. When writing up your business plan, start by throwing all the essential numbers in a spreadsheet and determine if you are able afford the start-up costs with your current financial status. Entrepreneurs tend to underestimate the start-up costs involved―a rule of thumb is to break down the costs into one-off costs, cost of purchasing all necessary equipment, and working capital. Be conservative about the actual costs that will be incurred and put in place a system to track and review your weekly or monthly financial status. If you can’t afford to hire a full-time employee at $60,000 per annum, then you may have to do with a part-time employee. Also keep in mind that when you hire a full-time employee at $60,000 per annum, this is actually 50% below the actual costs of a full-time employee when you also consider the recruiting expenses, training and on-boarding expenses, employment taxes, benefits, and so on. 

For start-ups that are already in business, the focus is on knowing the actual numbers and comparing them with the expected numbers, which will help to inform decisions on the changes or improvements needed. At this stage, entrepreneurs should be clear about their margins and stick to them. For example, if you are selling sportswear like my friend, you need to make sure the price you set for each type of sportswear is high enough to cover not just the cost of sales but the overheads as well. Don’t try to grow sales rapidly at the expense of your margins, there are serious consequences that will follow if your income doesn’t keep up with your expenses.

Knowing your numbers – gaining more investment

My sportswear entrepreneur friend successfully raised over $600,000 for his business a few days ago, and the key to his success was knowing his numbers, which added clarity to his business proposal and ultimately convinced the angel investors to invest in his business. Investing in a start-up is after all a risky affair so investors need to go through the nuts and bolts of your business and be assured that you are in control of your business finances. Most investors expect a healthy growth of your business, so a forecasting model that is robust and correlated with the actual performance of your business is also crucial. Most investors are highly experienced entrepreneurs so don’t over-promise them, rather, give them a realistic plan so that they know what they can expect from your business. 

If you are start-up entrepreneur and are struggling to understand the numbers in your business, why not reach out to us and we can have a chat about your business plan. We have good working relationships with many entrepreneurs and start-ups, and who knows, we might also recommend you to the right person or a highly experienced mentor to assist you in your start-up journey.