Archives: Financing

9 Resolutions to Boost Profitability

9-resolutions

Whether you’ve been in business for 10 months or 10 years, you’ve probably turned over the calendar to 2017 with the goal of increasing profits.  I know I have.

For me, I spent the last week of 2016 (when all my revenue had been accounted for, and the expenses entered), digging into my financials; looking at what went well, what didn’t, and how I want to increase profitability for the coming year. The past year was a time of transition and experimentation for me: I had two books published and I spent more time speaking at conferences and promoting the books. It was interesting to see how it all manifested itself in the numbers.  The difference in the two books was stark – though I generated more revenue from the cookbook, the promotional costs for the cookbook, not surprisingly, were greater than the business book. While the time preparing for each event was more or less the same; for cookbook events, I also bought food and printed recipes. For The Farmer’s Office events, I just showed up.  The measure for a successful event for each book is very different.

As I sifted through my QuickBooks data, I also realized I needed to make changes to how I tracked my financials. What worked before doesn’t make sense now that I have book sales and promotion. To get meaningful information, I reclassified many transactions.

For the New Year, I can make goals for how I want my business (and book sales) to grow, I have an improved system for tracking my progress, and I have a basis to measure my success.

If your goal is to increase the profitability of your business over the next year, then you need a plan to get there. And there’s a process to get there: To create that plan, you need a solid understanding of your business’s economics; and you may need to resolve to make some changes in your bookkeeping habits.  (It always comes back to bookkeeping, doesn’t it?)

Here are 9 resolutions to help you tackle the financial management of your business and stay on track to improving your profitability.

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Debt vs. Equity: What’s the Right Type of Financing for You?

As you prepare to grow your business, one of the first things you’ll consider is funding. Most entrepreneurs base their decision primarily on the repayment terms: what sort of interest/return does the financier expect and when the funds are expected to be paid back.  Some entrepreneurs opt for equity because the repayment timeline is less rigid (which gives a false sense of “free money”). Others choose debt because they don’t have to give up ownership control.

There are many more differences between debt and equity, and the decision to choose one or the other becomes clear when you consider your business and growth needs. Continue reading

Preparing for Investors: Financial Projections

In May’s article we talked about how to prepare for investors from a big picture perspective: learn the language of investors, tell a good story, make sure the numbers add up, be realistic, and be professional.

These big picture tips rest on the cornerstone of building financial projections:

  • Learn the language of investors, so you can use it properly as you present your financials
  • Tell a good story, based on the numbers
  • Make sure your numbers add up, in your financial projections
  • Be realistic about how you will launch and grow, and show this in your financial projections
  • Be professional, as you present yourself and how you present your numbers.

Ultimately, investors want to see solid projections to know that you will be a good steward of their money. When creating financial projections, you have three main objectives:

  • To force discipline and objectivity into your business dream through a methodical approach.
  • To demonstrate thorough understanding of your company’s business model, building credibility with your potential investor.
  • To provide answers to the question “What if?”

While the bottom line in your financial projections is important, you may notice that the objectives above have a common theme: investors are more interested in the financial assumptions underlying the bottom line: that is, how did you get there?

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The Rules of the Game: Preparing for Investors

When people ask what I do for work, I tell them I’m an articulator. I don’t write business plans or create financial projections; I help entrepreneurs get their business ideas on paper so they can approach investors. I help my clients articulate what’s in their heads in the format that banks and investors want to see.

At some point in your entrepreneurial endeavors, you’ll need to raise money –– and when you do, you’ll need to put together the executive summary, business plan and financial projections. A lot of work goes into these documents, so it helps to have a sense of the larger aim as you put them together.

The bottom line is that you’re asking someone to give you money. They are not only investing in your business, they’re investing in you. You need to demonstrate that you will be a good steward of their money.

In the last few years, I’ve helped my clients raise over $2.5MM in financing. Here are my five tips for putting together a compelling package and presenting it successfully.

  1. Learn a few words of “Investor-ese”. Every industry has its own language, and when you mix and mingle in other industries, you need to learn a new lingo. This is especially true for farmers and chefs applying for a loan or seeking investors to grow their business. Being able to understand investor lingo will better equip you to answer their questions as they consider investing in you. Here are some of the key terms that investors and lenders will throw at you, and what they mean.

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Glossary of Business Terms

Every industry has its own language, and when you mix and mingle in other industries, you need to learn a new lingo. This is especially true if you are applying for a loan or seeking investors to grow your business. An entrepreneur needs to understand the language of the investor/lender so that she can provide the information that they want to see. Here are common terms that you’ll find on loan applications or used by investors. Continue reading

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