Taking care of your own money is an art, and almost everyone does it, or at least they should, economic and financial viability in an innovation process is precisely that.

No one buys a house or car without evaluating how to pay for it and what the future will be like, right?

And how is this process carried out in companies?

The process is the same and is called financial viability assessment.

Before buying or investing in innovation, good companies evaluate the pros and cons of any action that involves money and time.

In short: it is a study that evaluates whether or not it is worth starting or investing in something.

But how to carry out this analysis of economic and financial viability?

The process simply involves comparing the financial return against what will be applied.

We won't go into detail about this process here, but if you like it, let's delve deeper into what matters: how does this affect my idea and innovation?

Ignorance of the economic and financial viability of a project is a villain that you create without knowing it.

No matter how good your idea is and no matter how motivated you are, one mistake here and you cannot implement your idea.

Let's get to know some of these problems that those who seek to innovate face in their daily routine?

1) Not considering the time invested

It may not be clear, but the main resource an innovation or idea needs is time. And time, as the saying goes, costs money.

But how is this time invested? A simple example could be the time you calculated thinking about the cash flow of this project.

If you are going to invest or receive investment from a bank, you will need to set up a good flow and to think about this, of course, you need to plan future income.

What are the expected income and expenses in the next 3 to 5 future years?

Or did you think about starting something without defining, even intuitively, how much money you would generate with your new product or service?

As a tip, remember not to just design for “feeling” and look in the market for how much and how people would pay for your initiative.

An indicator that you can use to size your investment is the Payback.

This indicator will show you how long your innovation will take to pay off.

You can make Payback in two ways:

a) Traditional or Simple: does not use time in the formula. If you took an investment of R$120,000.00 and get returns of R$10,000.00 per month, then your Payback will be 12 months.

b) Discounted: In this model, the Minimum Attractive Rate (MAR), which is defined when evaluating the source of capital (investors, angels, banks or even your piggy bank), in addition to the expected profit margin.

In the model of Discounted Payback just use the ARR to discount the cash flow and bring it to the start date of the investment.

2) Betting on the wrong product (and taking too long to correct it)

In a market scenario with many good innovation options, it is not always possible to choose the right product.

No matter how much planning and strategy you have, countless items can hinder the journey of your new product.

Taking too long to launch and losing your consumer's appetite for something new is an example.

The challenge at this stage of economic and financial viability is being able to predict this negative effect and reduce the impact of a wrong choice.

It's not a problem to opt for something that caused a loss, this can happen, but it's essential to correct this very quickly!

That is why it is important to analyze and monitor your financial statement weekly, fortnightly and monthly.

We know that the main objective is profit, right? To learn more about how to find out if your product will make a profit, read more here!

To better monitor your analysis, we will give you two tips on well-used and essential indicators for any economic and financial assessment:

The) Net Present Value (NPV).

NPV is one of the main items used in evaluating the viability of investment projects.

Simply put: it is the difference between the value invested and the value redeemed at the end of the investment, always bringing it to the present value.

With it you will find out if your innovation will bring more return than it will cost at the end of the project.

If the NPV value is positive, you will be able to generate profits. Otherwise, with a negative result, you are left with no profit and a loss. And if the f-valueor null (zero), the project will even come into balance in the coming years, but without the essentials, without the profit.

B) Internal Rate of Return (IRR).

It is an extremely used rate that shows the profitability of an investment project.

It is the rate of return that will reset the Net Present Value, considering the value of money in the indicated period.

3) Size the investment below what is necessary

If betting on something wrong is a problem, choosing the right one and not budgeting correctly is also a problem. You must be very attentive and foresee all the items that will make up your offer, not just the development.

Remember that a product or service will require planning, communication, training, actions in specific locations and other costs that you need to detail.

This happens because along the way, almost like renovating your home, more and more items will appear that will throw off your budget and your profitability!

You can use a simple projection of variable costs, taxes and fixed costs (salaries, electricity, internet) and create a scenario. Easy and will guarantee you less headaches.

Everything has a limit! And you don't spend all your money on something just because you like it, especially because in excess, everything is bad.

4) Bankruptcy

Here our tip is essential: know how to stop and evaluate your financial health daily with a good cash flow.

In other words, economic and financial viability is a routine and not something you do and forget.

If you don't identify the problem and fix it in a timely manner, the innovation that would save your business may be the one that ends it.

Taking care of your financial health before something happens is what will prepare the ground for new and profitable ideas.

We at 4C have a product development platform that guides companies to transform ideas into successful sales products.

Continue reading our materials and subscribe to our newsletter for even more content about innovation to get off the ground and conquer the world.

How can we help you?

We, at 4C Innovation, are a product development platform that guides companies in implementing a culture of organizational innovation, transforming ideas into products/services with market viability.

O innovation software, the CRD, emerged from MIT's digital transformation concepts, aligned with years of experience in innovation consultancies.

So much so that the end result was an innovation governance tool, used as a means to manage the transformation of ideas into products or services, such as implementing improvements or even analyzing startups.

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