By Samina Tapia

Julian So is an active investor. He came across the opportunity to invest through an Angel Investment group and his journey to mentor startups took off. His passion for entrepreneurs and new technologies makes him yearn for more learning without halting. He is also the director of CFO 4 U Limited, which provides contract and virtual CFO services for startups and high growth companies. Throughout his expeditions, he has been named a finalist for the Ernst & Young CFO Award and a regional finalist for the NZIM Young Executive in 2010.

In this edition of Let’s Talk Business, we hear from Julian on why it’s so important to get the numbers right when starting out.

How can I, from the experience of other startups, figure out my cost?

Do a lot of research. Talk to other founders and financial advisors, who share your sector, on their cost structure and pricing. Good examples can be potential suppliers, a market analysis of available products and services within your target area. Then, compare your products and outline your strategic market placement in terms of customer pain points and pricing.

Where can I go wrong at the beginning?

Lack of validation. Often, founders spend thousands of dollars and years in developing their product or service, but overlook the most important aspect - connecting to the customer early. If you’re not talking to your customers, how do you know if you are solving their problem and if they want to pay for that? You want to know if the product or services you want to launch will catch on in the market. So, ask your friends, family, and any networks you can leverage for feedback to validate your business idea.  Don’t try to sell your products straight away, but exercise listening and find out the shortcomings and then offer your suggestions. Research, ask, listen, and adapt to that feedback.

“Often customers have a problem but they don’t want to pay for it."

Communicate effectively. One of the dangers when starting out is new entrepreneurs often launch their product at a low price. Let customers know this is an entry price so you can revise the price down the track. It can be harder to raise a price than lower one.

If you’re considering starting a venture, build a founding team you are proud of and have different strengths in different areas is important. Remember, no one is perfect and everyone comes with their unique strengths and weakness. Embracing that and building on yours and your team strengths is the key to learning and growing.

Three Key factors for managing your Finance:

Cash flow planning: Understand the financial side of your company and have a cash flow forecast that can clearly show how much money you expect to receive and how much is expenses. A good example would be tracking your outgoing payments like  GST, staff salaries and professional taxes that are mandatory, to position yourself to withdraw your profits. Be realistic in what you can achieve, and it will pay off with less stress, debt and false starts down the road.

Know your margins: Start-up’s need to make money to keep afloat in the long run and monitoring your business health in terms of profit margin is essential. Whether you are an established business or working out of a garage, there is a dire need to understand your profit margins. Knowing what you are making out of what you are selling is vital for the business. If you do not charge enough, your business won’t be viable.

Customer costs: The CAC is the “Cost spent on Acquiring the Customers” or the marketing cost that you incur in converting a customer to buy your product or service. However, marketing costs can be controlled and worked upon by identifying cost-effective marketing channels or methods for your business. Reducing the CAC will help your business spend more effectively and you should see higher returns in the total profit.

“You don’t have to be an accountant to understand your finances.”

So, to get you started on the right foot, no matter where you are on your journey, make sure you learn and comprehend your numbers and accounting systems and identify any potential problems. Every business owner must have a basic understanding. Once you detect problems, you can look for solutions. You will never know enough and might be forced to decide without fully understanding what is coming, but once you get comfortable with numbers, you are almost there. Hence, numbers or finance is the one thing you cannot ignore as this is fundamental to success.

Need some financial advice? Schedule a 30 min free zoom session with Julian So.