5 Business Fundamentals You Should Understand Before Launching a Startup

Last updated: 10-29-2019

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5 Business Fundamentals You Should Understand Before Launching a Startup

No matter the nature of their businesses, allmust understand the economic basics that help keep their companies thriving. That's true for everyone, but probably especially true for those who consider themselves more creative than. 

Without a solid background in the business side of business, being in charge can feel overwhelming. Understanding how to read a balance sheet and a P&L statement is just as important as understanding how to make the product oryou provide. 

I meet many startup founders who don't have a good sense of where their business fits into the larger economic puzzle, or what effect an economic downturn would have on their company. You don't need to be an economics professor to launch and grow your own successful business, but you should at least understand what your economic community looks like.

That means you should know your market and your startup's place in it. Who are your major competitors, and what do they bring to the table that you don't? More importantly, what's your company's unique value proposition? You need to know what distinguishes you from the competition if you want to convince prospective customers to choose you instead of them.

Becoming financially literate is one of the most important investments you can make in your startup. While you'll almost certainly hire skilled financial experts to handle your company's accounting, bookkeeping or tax needs, it's crucial that you grasp the basics. 

Can you read a profit and loss statement? Do you understand the difference between financing through debt and financing through equity, and what each can mean for a young business? Do you know how to create a budget? 

If the answer to any of these questions is "no," then you'll want to invest inyour own financial educationas soon as possible. These concepts aren't terribly difficult to grasp, but you should grasp them well before you open your doors for business.

Budgeting is just the first step. You must also understand the concept of cash flow projections. How much money can your startup reasonably expect to earn? How much of that total will be profit, and how much will fund day to day operations?  It's essential to do the real work on this task and take a cold, hard, fact-based look at what you can reasonably anticipate in the near future from your business. 

Which one is the wisest choice for your business in its early stages? The answer can mean the difference between a thriving business or having to look for another W-2 job.

All businesses are sensitive to certain financial, economic and legal frameworks. For most new small businesses in the U.S. that means ensuring all regulatory and legal requirements have been met. Legal aspects of your business include your:

Understanding the legalities of doing business also means managing your intellectual property as well as maintaining the right to do business. Does intellectual property like trademarks, copyrights or patents support your business? If so, you'll need to know from the start how that IP is defined and what you need to do to protect it.

Finally, as a means of managing risk and reducing legal exposure, insurance is crucial to a vital, growing business at any stage of development. Educate yourself first about the different kinds of insurance products available (i.e., general liability, professional liability, workers compensation, and others). 

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