Calculation and prevention are key to making sure startups flourish instead of withering away.
Before you can grow anything in a field, you have to get rid of the thorns and thistles. Similarly, 2021 is a year for removing the thicket before starting a new business.
To tell entrepreneurs how to clear the ground, two experts give their advice in an interview for Tec Review. The first of them is Francisco Orozco, Director of the Northern Region Accounting and Finance Department at Tecnológico de Monterrey.
He says that entrepreneurs are adventurers by nature, and therefore often make the mistake of leaving financial planning to the last minute.
“The first big exercise is to calculate break-even point. What’s your sales price going to be? How much is the product going to cost? What are the overheads and expenses you have to make? Once you’ve found that point where you neither win nor lose, set goals and objectives based on the return you need to make the investment worthwhile,” he explains.
This break-even point also serves as a parameter to be able to think objectively about the dividends you intend to obtain.
“You have to make sure your products or services make 50 pesos of profit for every 100 pesos of sales, because you’ll be paying your overheads with those 50 pesos,” says this expert.
Entrepreneurs shouldn’t believe that what they’ve sold is what they’ve earned. According to Orozco, there are other responsibilities and obligations such as wages or machine maintenance that have to come out of that money.
This director also says that new products or services always appear as new needs arise, such as those resulting from the pandemic, and we must understand whether or not they’ll prevail in the market.
“They shouldn’t be just pandemic products or services, but really a trend. Some entrepreneurs may be shortsighted in the sense that they have the urge to create something, but they don’t understand that the market is going to evolve,” he warns.
Orozco also says that these are no longer times to live from a single business, from a single source of income, because now we need to exploit skills and abilities to generate other sources of income through hobbies or close friendships.
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The second expert consulted is Óscar Pineda, Technical Director of No Vida at MAPFRE México, an insurance company, who says that small and medium-sized enterprises (SMEs) are prone to increased threats in the context of the “new normal”.
“Many of the companies had to close or suspend activities when the federal government declared an emergency. This meant that they were also exposed to theft or break-ins that could affect their assets,” says this executive.
Regarding the sale of goods, Pineda says that there are protection schemes for insuring deliveries of products, because they could be damaged during packing or transportation.
“You can also insure delivery drivers who ride motorcycles,” he adds.
Pineda says that SME owners tend to have the idea that these protection plans are expensive, which is why less than 5% of these companies are insured in Mexico. However, the cost is affordable.
“The average premium is below 1,000 pesos a month,” he concludes.