From the moment you transform knowledge into a digital product, you end up creating a company. This is a fact. Obviously, every business needs to have a good financial organization.
And just as companies that operate 100% in the “real world” need to organize finances, companies that operate in the digital world are not far behind. Financial management needs to be part of the routine of any company, no matter if the product is delivered in the real or virtual world.
Financial organization: starting from the beginning
Do you know how to maintain your company’s financial health or how to manage it financially?
Well, first of all, let’s start by defining what “financial management” is so that you don’t get too lost. Financial management is knowing everything that comes in and goes out of your company in terms of money. The concept is pretty basic, right?
It seems like something so simple to do (and it really is), but most Brazilian entrepreneurs don’t do it and that’s why they start to hang themselves financially over time.
You should start like this:
1 – Understand your accounts;
2 – Cash Flow;
3 – Classifications and Charts of Accounts;
4 – Financial Indicators;
5 – Budget.
Often people put this information into an Excel spreadsheet and do a little calculation to see if they are making a profit or not.
If you want to know how to make these calculations and which variables are needed, Celero’s blog has a very complete post on this subject. Financial management also involves controlling, planning and analyzing your finances, so pay attention to these details at all times.
When doing the financial management of your business, you need to keep an eye on 3 extremely important variables, they are: contribution margin, break-even point and the cost centre.
So you don’t despair and know what each of these variables means, get even more comfortable in the chair and come with me, let’s talk about each one of them.
I say “yours” because soon you’ll want to be best friends with that term when you start analyzing your finances, it’s what you’ll find every end of the month.
Contribution margin is all that is left over after the sale of a product or service, this number does not involve taxes, commissions or other costs of your company. In other words, it’s what you actually get for the sales of your services.
If this information is correct, you can tell if you are making a profit, just paying or having a loss. Okay, but how do you arrive at your contribution margin?
Well, you will need to create a control map of your company, in practice, this means that you know what your income is, eliminate costs, taxes and the blessed variable costs.
I don’t know if it’s very clear what these variable costs are, so I’ll give you a quick explanation. Variable cost is anything related to the sale of a product or service that does not have a fixed recurrence. For example material resources.
If sales increase, you can continue to pay the same supplier for a specific material to keep production at the same level. But if sales drop, it’s normal to look for cheaper alternatives to control spending.
This is what we call variable costs.
But going back to the contribution margin, when you take out costs, taxes and variable costs, the result is your contribution margin. Done? Now is the time to talk about the balance point.
I think the name gives a hint, but the break-even point is when the company’s profit is equal to zero. This means that it is neither making a profit nor a loss, that is, it is paying for itself.
For you to reach the balance point, it is necessary to know everything, everything that the company has to leave.
Something like the amount of taxes paid on the product, production costs, provision of services or resale, and what the company’s expenses are.
With this information, you can reach the balance point and know what action to take.
The name isn’t as self-explanatory as “balance point,” but it has an essential purpose. The cost centre is responsible for saying if your product is being profitable through comparison separations.
Got confused? Calm down, I’ll explain.
The cost centre shows what is bringing profit and where the biggest and smallest losses lie.
To do analysis through the cost centre, answer these 3 questions:
1) In your company, do you work with projects or temporary online courses?
2) Does your company have different products or branches?
3) Do you have ongoing contracts or monthly fees with customers?
The answers will help you understand what your company’s situation is, okay?
Now that you know that it is necessary to keep an eye on these 3 points to organize your company, did you know that it is possible to do all this automatically?
The Celero is a financial automation platform that offers the features of a high-tech management system and the expertise of specialists from the financial district that accompany the daily routines of your business.
Celero’s solution provides time for the entrepreneur to focus on the key business activity and data to help build the best possible strategy for the company.