In order to operate a business, regardless of the industry, you need to have the capital and finance available – from location and licenses, to product, packing, marketing, and more – there are a huge number of areas that need addressing.
Business finance, at its core, is about securing economic support – having enough money to cover purchasing, goods, materials, business and operating expenses, and enough to bring in more money as the company grows.
It’s a fundamental fact of business life that in most cases, you have to spend money to make money; and when it comes to business – this isn’t as straightforward as maximising wealth; for companies to be truly successful, this has to be done in a way that not only increases income from profits, and rewards stakeholders or shareholders, but also ensures healthy growth and development of the company.
There are a number of different stages to the process, and goals that need to be strategically aimed for, in order to be profitable.
The first stage of your journey, and the linchpin that every other goal will hang from – if your company is not bringing in money, then you can’t aim for anything else. When creating a strategic approach to your business finances, you have to carefully evaluate your current situation:
– How much is coming in?
– How much is going out?
– What is the current state of the market?
– How stable is the market?
– How far ahead can you reasonably accurately predict, and how do these predictions compare?
– How much are you relying on external financial support, and is this sustainable?
Once you know where you stand, and have secured your initial revenue, then you can start thinking about the next stages.
Increasing Profit Margins
In order to grow at a sustainable rate, you need to find the right ratio between your operating expenses, costs, and income – maximising your profits and ideally aiming for a large profit margin. What you do with your profits is the important point of this goal – how are you using them? You may have contractual agreements and arrangements with stakeholders or investors, and it’s important that you consider these carefully before signing into any profit-sharing or profit-based contracts. If you are paying out too much of your profits, you may find that it’s successful in the short-term, but could lead to serious problems in the long-term, because you’re not leaving enough aside to re-invest in the business.
Consider reinvesting profit with the aim of increasing the profit margin year-on-year, with employee training, incentives to monitor customer engagement, and offering competitive salaries to obtain high-quality leadership and team members.