Some thoughts on costs
It’s very easy to forget about costs when you are focused on business development and sales. It’s exciting in the early months and tempting to 'treat' your business (well, OK lets face it.... its for you!) but you need to have an eye on cash burn. Some major pitfalls:
For point 3 this centre’s around the fear of missing out. You produce 100 chairs a month, yet you think you need the software package for a company producing 10,000 a week (you get dazzled by a sales pitch). If you are not in that league yet, do not feel like you have to spend in that league.
So how do you start to control costs from the start?
Use your cash flow projections. What this will do is show the long term impact of your spending habits for your business. I would advise going to 15 months ahead.
Cash flow basic steps (there are plenty of free templates on line):
I have purposely ignored projected sales, that are not confirmed. I want you to really think about your overheads. The additional projected sales are the icing on the cake. However, it is human nature to see potential income as guaranteed and therefore you fall into the trap of spending money, you do not have.
Your cash flow may throw up negative months, so this should trigger you to think about:
A projection is exactly that it’s a projection, so be honest with yourself about the implications of your plans
Clarification on costs in your P&L
While the net impact to your bottom line stay’s the same, it is incredibility important to understand cost of goods sold (cost of sales) versus general expenses.
The reason being, as your business becomes more complex, it’s important to separate the costs driven by your customers and the costs you drive. You could have a great margin on cost of goods sold, but all that hard work could be diminished by high overheads.
In the early stages, you may have to sacrifice your own comforts in order to invest in the quality of the product or service you create. This can be tough, but by getting into the habit early on, you can give your business the right foundations to have those treats in the future.
I will leave you with a much used quote:
It doesn’t matter how much you earn. It matters how much you save....
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