5 Finance Concepts You Need to Learn Now

For any company or franchise to grow sustainably it is necessary to keep in mind the soil where the new fruits will be planted.

Of course, original ideas and management and marketing strategies are critical to growth, but none of this will be possible without strict control of the company's General Finance and accounting.

Among the main causes for companies to close their doors with less than three years of activity are the lack of planning and the lack of control of management. To help you, we separate some general finance concepts that cannot be overlooked in running your business.

An important step: The Initial Capital

This is the time to start the venture with the right foot; however, by planning this stage poorly, many companies settle their debts long before the inauguration. The initial capital calculation, i.e. the initial investment of the business, should take into account a conservative study of the market that will be explored, as well as the essential resources to start the activities.

They are calculated from asset items, such as merchandise, machinery and facilities, up to start-up expenses, such as opening marketing. Many experts also recommend setting up contingency reserves to subsidize possible future expenses (such as paying the FGTS of employees in case of dismissal by the company), as well as the formation of working capital.

Hard Control: Cash Flows

Having control of Cash Flows is a fundamental measure for every entrepreneur. It is through this mechanism that it becomes possible to measure the inflows and outflows of general finance resources in a given period and, in this way, to know if the company is able to fulfill or assume obligations (loans or installments made with suppliers), verify if there are resources for new investments, calculate the share of goods that can be purchased in cash, the availability to pay fixed expenses (e.g. rent, wages and cleaning), among other utilities.

To keep this control simple without wasting time using difficult-to-use excel spreadsheets or complex programs you can use QuickBooks, an alternative to control your entire cash flow.

Fixed and Variable Costs

The Variable Costs are all those that have their value linked to the level of production, that is, the more it is produced, the more they are generated. This is the case of a shopkeeper who offers commission to his employees, for example.

The more you sell, the higher the commission. The Fixed Costs are those that are independent of the production volume of the company. They will occur even if there is no productivity. They cover, for example, wages, rent, cleaning, among others.

It is important to identify these two types of costs to define, for example, what the value charged by your product should be and what costs are necessary to continue your business.

Contribution Margin (MC), a fundamental calculation

Knowing how to calculate the Contribution Margin (MC) is essential to figuring out the gross profit from sales. It is the difference between the revenue generated by the entrepreneur and the Variable Cost of production. For example, if John has a monthly income of 400 reais with the sale of hot dogs, but spends 150 reais to produce them, the Contribution Margin will be 250 reais. Discovering this value is essential for defining the Balance Point of our company, as we will see below.

Posted on June 08, 2018 at 05:44 PM