Some advises about Financial Analyses

When we start a business in a structured way, one of the first activities we perform is a business plan that includes financial analyses. This is a good exercise because it is the starting point in order to analyze various aspects of our firm. However you have to take some points into account so that this analysis can be similar to the reality and not far away from it.

 

Costs for our company

Generally the costs of our business are easy to determine, because almost everything is already created and in the same market we will be able to find this costs. It is very important to remember that some are fixed costs and do not depend on the number of products we produce or sell, but other costs are variable and are subjected to the units we produce or sell. In this way it is very important to differentiate among this costs and to formulate correctly our spreadsheet.

Other element we have to take into account is not forgetting any of our costs. When we structure a business we don’t manage totally it is very important to investigate and make an exhaustive analysis in order to avoid this kind of mistakes. Even though this seems obvious it is a mistake that can occur and can punish our margin or even the viability of the business.

 

Sales of our business

The price of our product must generate profit. This must be true at least on the long term. Many times on the first stages of our business we might have to lose some money while the company strengthens and we pay for the initial investment. However this can’t be a situation to maintain indefinitely and less when we don’t have the financial muscle to bear it.

Many companies make this mistake. Sales on the long term will be capable to recover the investment obtaining what was stated on the first sentence of this section: generate profit. However calculating sales is not as easy as calculating costs, because we will have to imagine the acceptance of our offer and sometimes in the reality it is not as easy or fast as we imagine it. Market studies help, but once again this is not a variable we know for sure and we need to estimate. This is the reason why it is very important to have at least projections in 3 different scenes: positive, negative and neutral. In this way we will diminish the business risk and we will be prepared in case that any of this scenes materialize.

 

Definitely the financial analysis in our business is very important, but we have to make an exhaustive exercise so that it does not comes from our imagination but form a possible reality.

 

Image taken fromFlickr.com