Bizzalley's Business Q&A

Q)What's the ideal profit margin?
Bizzalley's Answer-To find the ideal profit margin, you must consider and calculate both your gross profit margin and net profit margin. There is no fixed percentage of what an ideal profit margin is because it varies based on what industry you are in and the cost of your production of course. As a
small business, most people are tempted to keep their profit margins low in order to make sales with hopes of increasing it as the business grows. However, it is better to set your profit margin at a standard rate right from when you start the business because as you grow, you have more expenses from hiring and expanding and although you will be bringing in more money, your profit margin will actually shrink as you grow.

Q)What does it cost you to make a sale?
Bizzalley's Answer-It is important that you answer this question because of your CAC (cost of acquiring customer) has to cost less than the value the customer brings to your business. CAC involved everything you do to get a customer including marketing, advertising, salaries paid to employees. If you
offer a non-recurring service, it's pretty easy to calculate compared to businesses that offer recurring services. Whatever the case, it is important to keep your cost of acquiring a customer lower than the amount the customer actually brings to the business. It is easy to lose sight of this especially when your advertising and marketing methods are working, but be careful and don't forget to always keep track of it.

Q)How do investors see your growth rate vs your profitability?
Bizzalley's Answer-You should be making money as you grow, in a perfect world that is; however, small businesses have it different. The good news investors know this is not a perfect world and most times, you have to sacrifice one for the other. Most investors will pick a business with slow steady growth over profitability( if the right revenue is coming in) because they understand that you've had to sacrifice making a profit to grow the business; employees and expanding don't come cheap. However, quite a few other investors will take a fast-growing business which will peak in a year or two over long term profits.

Q)How do you know you are making a profit?
Bizzalley's Answer-The answer to this like each of your financial questions lies in your books. It is important to know that taking in money or revenue does not translate to profit. So many businesses, big companies included taking years to break even and start making profits. So how do you know when you've started making profits? You start making the profit from the point your total cost and total revenue are the same. At this point, you've broken even and can now actually make profits.

Q)What do I need to track my financials and how do I do it?
Bizzalley's Answer-Not a lot of business owners know how to track their financials and sadly also cannot afford a professional to handle their books. If you want to handle your books yourself, you must know it's a full-time job that involves your full attention and commitment. From invoices to dealing with taxes, financials are actually a big deal. There are a couple of accounting applications and software you can use to make your job easier. Find which works best for you and apply to your business.

Q)What do you do if your overhead expenses are going up at the same rate as your revenues?
Bizzalley's Answer-As your startup grows, you will keep racking up expenses from several places but if your overhead expenses keep growing the same way your revenue is growing then you are in a fix. If this happens, then your business is headed downhill. Take a step back and cut off unneeded expenses, cut down on excesses; it is definitely a difficult procedure to follow but be sure that it will benefit your business in the long run. Most small businesses only look at the revenue coming into the business and not how fast it is going out, you definitely do not want to be that person. Watch your expenses more than your revenue and know when to cut down on it.

Q)How does your small business measure success?
Bizzalley's Answer-As a small business owner, it is vital that you have a metric for measuring the success of your business. One way that works is to develop a budget every 6 months and see if you hit the mark. Work towards it and try to get that financial mark every time. However, be careful not to set an unrealistic budget for yourself. Analyze your business, and see what amount your business can make, all things being equal. Remember that the point is to measure how
successful your business is and not to beat yourself up.

Q)How do I calculate how much my business is worth?
Bizzalley's Answer-Knowing how much your business is worth is very important especially when you are looking for investors or planning to sell. There is no single general way to calculate the exact worth of your private small business however to get a fair estimate, you should take into account how much you've put into starting the business, assets you have gained over time, time spent in building the business, current cash available, forecast growth. Take all of these into consideration and you have an estimate of what your business is worth.

Q)How can I improve my company's general financials?
Bizzalley's Answer-Having a healthy cash flow is the only way to improve a company's financials. Monitor and consciously strive to increase cash flow to your business. One very important way to increase your cash flow is by studying and understanding your cash burn. What takes away money the most from your business? Identify that and try to reduce it. Maximize your pricing strategy and have a daily budget.

Q)What's the best way to finance and support my business?
Bizzalley's Answer-Most small business owners do not usually have the expertise and financial knowledge to manage their businesses properly and it is important that you either take out time to learn these or outsource the job to professionals. From your financials, you would know when to scale up, when to invest more money in your business and what area of your business needs it the most. Attend pitches and know the right way to get investors. An upside to outsourcing your financials is that your accountant has links to bankers and VC's and will be on the lookout for investments that are perfect for your startup.