Any undertaking, no matter how small, requires an economic investment. We are not always talking about large amounts of money. But you will almost certainly need to invest in equipment, materials, licenses, services, infrastructure, products, and whatever resources you need to get started. For many entrepreneurs, the main fear when initiating their project is that they will lose their investment and that other economic losses will occur. And this inevitably stops the entrepreneur.
It is understandable. In general, whenever people invest, whether in a project or some financial investment, they look forward to positive return and capital growth. However, you should not let this fear stop you from developing that new app you have been thinking about or starting that business that has been floating around in your head. With good planning and anticipating errors, you will surely be able to minimize money losses. In this article, you will learn some valuable tips.
Conduct a Market Research
Before launching any project, you must thoroughly research the market. What is the value proposition you offer? Is there an audience interested in buying what you offer? What purchasing power does the potential client you want to target have? Is there competition in the sector? Is that industry booming or declining?
These types of questions are what you should ask yourself to determine if there is a potential market for the project you want to carry out.
When you carry out the market research, you must consider:
- Analyze the industry in which you will develop the project.
- Study of the present and future market potential: potential customers and their behavior, market size, sales predictions, or growth prospects, among other aspects.
- If there is any competition in the current and future sectors.
In this phase, it is also recommended to resort to an analysis that reviews the strengths, weaknesses, opportunities, and threats of the project. Both internally (organization or company) and externally (market).
Financial Analysis
You are already clear that there is a market for your launch, but do you have the financial capacity to launch it and keep it active? That is another of the keys that you should consider in the viability of a future company.
Through a financial analysis, you can value the initial investment, calculate a company’s profit, identify costs, and determine if you will offer your product or service at an optimal quality-price ratio.
Maybe your product is genuinely attractive, and you have analyzed that there is a market. But if it is expensive to produce, you will have to increase the retail price to cover expenses. In this case, perhaps the public considers the price excessive, it is beyond their purchasing power, and they decide not to consume it.
Therefore, the economic analysis must contemplate a forecast of fixed or variable costs and income to calculate whether the company can obtain the profits and give the results you are looking for.
Have a Financial Fund to Cover Expenses
You should always make sure to have sufficient financial reserves to cover your personal and family expenses for a while until the venture begins to generate profits. If feasible, even a reserve that also allows the company’s operating costs to be covered for the time necessary until the investment begins to bear fruit.
Additionally, in your budgets, always take into account a margin for unforeseen events. Some people like to apply 5% of expenses, but depending on your business sector, you may require more or less margin for unforeseen events and estimation errors. Also, do not fall into the temptation of setting a margin of error that is too high, as you run the risk of being light and lax with your expenses.
It is very likely that you are walking through turbulent waters and assuming a greater risk than recommended if you only have the initial investment and expect the project to immediately generate money to cover your costs and ensure income.
Monitor the Finances of Your Business or Project
You must continuously monitor expenses and income, and compare it with your estimates. Do it in short periods (no more than a month) that allow you to visualize the discrepancies between your estimates and the reality of the execution, and take corrective measures as soon as possible.
You will not realize whether or not you are achieving your goals and whether or not you will be able to recoup your investment and generate profits in the time you had anticipated if you do not closely validate your estimates and update them as you go,
Perform a Proof of Concept
A proof of concept (PoC) is a rapid implementation of a startup’s value proposition to demonstrate that there is a link between the corporation and a promise of a sustainable business model. It is a way for the startup to show that they can offer real value to companies beyond just presenting a slide explaining the project. Thanks to this resource, you will not only be able to determine if the idea is economically viable, but you will also be able to attract investors.
Seek Professional Support
If necessary, be sure to resort to specialized accounting and financial help to ensure the quality of the analysis. Many times, to save ourselves from specialized advice at the beginning, we get into inappropriate investments or make financial decisions with a high probability of failure. If you do not come from the financial or accounting area, or if you do not adequately know the figures of your market, it is best to hire someone specialized who can support you objectively and professionally to make serious and accurate estimates.
Conclusion
We are all interested in seeing our business or project prosper and generate profits or provide certain results. To do this, you can make a financial plan, monitor your finances, and hire a professional service to guide you in this area. If you follow the tips of this article you will be able to minimize your money losses and start getting the results you have been looking for.
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