Financial flows: a guide for beginners

Managing the finances in your startup is a headache. However, I will explain the principles so that you understand a little what they are and what you have to watch out for, so that you do not make mistakes that will lead to the bankruptcy of your project.

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Financial flows: a guide for beginners
Financial flows: a guide for beginners

Manage finances in your startup, Headache of many, but I will explain the principles so that you understand a little what they are and what to look out for, so that you do not make mistakes that will lead to the bankruptcy of your project.

First things first when you talk about it Financial flows We talk about how money is produced and distributed in a company, company or other type of organization. That is, where does the money come from, where does it end up and in what periods does this happen?

And is it to have these financial flows under control, to know whether they are healthy, what your balance point is, what your profitability is, your benefits, how many months you have insured for survival or when you need financing and what type and amount, etc. It is very important to achieve the continuity of your business.

I understand that when I talk to you about the income statement, balance sheet, current quota, or liquidity test, to name a few, you have the same or more questions, so I’m just giving you some tips on what to look for the implementation should pay attention.

Operating cycle

The first concept that you need to be aware of when starting your business is your operating cycles.

  • When and how much do you buy?
  • When and how much do you sell?
  • When and how much do you charge?
  • When and how much do you pay?

Working capital, cash flow and forecast

Working capital is nothing more than the resources the company needs to operate, including cash, inventories, machinery, labor, income and services, and depending on the industry of the company.

To calculate the amount of working capital you need to continue operating, you need to know the average time you paid for your product or service after the sale and the cost you will incur over that period these resources must be available to continue operating, either in cash, banked or available credit.

Having determined your operating cycles and your calculated working capital, you can calculate your cash flow, which is nothing more than your monthly income minus your monthly expenses, and do this calculation monthly so that you can determine the timelines of your company if you have a balance have positive or loss and so you can make projections. It is always good to know that you have enough money for 6 months, not 6 days.

Profit percentage and profitability percentage

Simple, the winning percentage is: I sell to 100, which costs me 70, 100-70 = 30, so I have 30% profit.

And profitability is useful, these 30 that I compare with what I had to invest. If I had to invest 1000 to get the 30, I would have a 3% profitability (30/1000 = 3%).

Investment and financing

Once we have identified these numbers, we can make decisions about the company’s immediate, medium and long-term future. If you need to apply for a loan, you know if you can take out loans. If you need investors, you know what amounts and what you can offer.

In the event of a liquidity surplus, you can evaluate new investments or the expansion of business into new markets, since these decisions are absolutely dependent on the financial health of the business and the circumstances of the market at a particular point in time.

Plan A, Plan B and emergency exit

And finally, the lack of risk analysis or a clearly defined strategy are some of the main problems that 80% of companies can’t wait to reach their third birthday. So before you get started, you need to plan, analyze, and define an action strategy, an emergency strategy, and an action plan in case things don’t go as planned and you need to close doors to rethink your business.

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