WELCOME TO ISSUE NO #015

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📆 Today’s Rundown

Happy Saturday! This week I’ve prepared a one big TOPIC and one freebie just for you.

TL;DR

• Revenue: Track sales pipeline for accurate projections and growth.

• Gross Profit: Optimize product/service profitability.

• Net Profit: Set goals to manage expenses and increase profits.

• Cash: Reserve 3 months’ operating expenses to avoid cash flow issues.

• Debt: Strategically manage debt within your financial plan.

• Processes: Ensure solid bookkeeping, budgeting, and cash flow management.

• I’ve partnered with my friend Tariq Munir to bring you an incredible opportunity to excel your career & your business with AI. More details below.

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6 Financial Keys to Success in Business

1. Revenue

Projecting your company’s revenue accurately is a superpower. But since you don’t have a crystal ball, what’s the next best thing to predict revenue?

A sales pipeline.

Start tracking your lead generation activities and document the sales process so that you can project sales with a reasonable margin of error.

This will not only help you project revenue more accurately but will also reveal how to increase your revenue with more of what works and waste less time on tactics that don’t work.

2. Gross Profit

Why does gross profit matter?

Because knowing your gross profit tells you if you’re making enough profit on the product or service itself, apart from any overhead expenses.

Gross profit is the profit you have after paying for direct labor and cost of materials. For instance, a bakery that charges $100 for a cake and spends $35 on labor, $25 on ingredients, and $5 on a cake box earns a gross profit of $35.

($100 - $35 - $25 - $5) = $35

The gross profit margin is the gross profit expressed as a percentage of revenue.

$35 / $100 = 35%

You need to start by identifying gross profit and gross profit margin targets to figure out where your company is losing money and how to fix it.

3. Net Profit

Net profit is the “bottom line”. It’s your company’s gross profit minus all your overhead expenses.

You need a goal for net profit to prioritize overhead expenses and identify investments versus which expenses are a waste of money.

For instance, if your revenue is $2M, gross profit is $1M and expenses are $900k, that only leaves you with $100k net profit, which is 5% of $2M of revenue. To achieve a 10% net profit margin you need another $100k in net profit either from increasing gross profit, cutting expenses, or a combination of the two.

Setting a net profit goal is essential to keeping more revenue!

4. Cash

Cash really is king when it comes to business finance.

82% of business go out of business because of cash flow problems. They simply run out of money!

Aim to save 3 months of operating expenses in cash and keep that money saved in a separate bank account.

What’s more, net profit isn’t the same cash - it doesn’t all go into your pocket. You have to pay taxes on that net profit, you probably want to pay yourself with some of that profit, and you want to be strategic about how to balance saving and reinvesting the remaining cash.

Cash flow management is often literally the difference between succeeding and failing in business.

5. Debt

Debt can be used wisely in a company, but they don’t call it a “liability” for no reason!

If you have debt, you need a plan to pay it off in balance with keeping enough cash in the business.

Sometimes you might want debt to have access to more cash or perhaps you’re seeking a loan to grow the business more quickly.

The overall principle for this: decisions about debt shouldn’t be made in a vacuum. These decisions need to be weighed carefully with the whole financial picture of the business in mind.

6. Processes

Having strong day-to-day financial processes will keep cash flowing in your business, give you control over expenses, and provide consistent clarity about your company’s financial performance.

Every business needs the following:

• A bookkeeper who reconciles the books accurately each month.

• A 12-month budget and review process to be intentional about spending.

• A 12-month financial projection with time dedicated to reviewing and updating in order to make wise future-oriented decisions.

• A cash flow forecast so you can manage your cash effectively and never worry about running out of money.

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