In business, the first step in controlling your business finances is to be in a position to reasonably predict and manipulate results in the short, intermediate, and long term. This is done by completely understanding the financial results you have already achieved and what the contributing factors to achieving those results were. What are the levers that control the results you are achieving? Ask yourself these questions:
- Are you currently Profitable? Why?
- Are you experiencing Positive Cash Flow? Why?
- And if not, why not.
The answers to these questions are not always obvious. In fact, many business owners don’t actually know the answers to why they are or are not profitable, or why they do or do not experience positive cash flow. But the answers to these two questions are critical to being in a position to manage your business (and not have your business manage you)!
It’s OK if you don’t know the answers right now; I can help you understand how and why you are achieving the results you are achieving and what the unique factors to managing your business finances are or should be. But for now, I want you to fully understand how important it is to have the information at your fingertips.
- An opportunity presents itself but will require a substantial cash investment. How do you make the decision to move forward or pass?
- A potential investor offers an investment of a substantial amount in exchange for a percentage of ownership in your business. Is the percentage requested fair and equitable?
So what are the important levers you should be managing?
List them here. (Remember higher sales does not always mean better results and lower inventory could be stifling sales.) Think about your industry, your location, your employees, your hours of operation, the way you do things, etc. What are the important financial levers for your business?
1.________________________________________________
2._________________________________________________
3._________________________________________________
4._________________________________________________
5._________________________________________________
6._________________________________________________
Here are a few important measurement factors for you to consider.
Current and Quick Ratio
EBITDA as a percentage of revenue
Industry Statistics
Net Profit Percentage
Working Capital
Fixed Operating Expenses
Cost of Goods Sold
You always have to be thinking about cash flow and profitability.
Careful! I see businesses trying to increase revenues instead of increasing their gross profit. A lot of times, business owners think that increasing sales is the answer to every business’s financial concerns. This is very often not the case.
You are most likely very good at the products or services your business offers; all you have to do is get good at managing the financial aspects of that business. Last step: What are the three most important financial factors in managing your business?
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To your success,
Marilyn J. Magett
If you have any questions, need some immediate advice, or would like to ask a few questions, please give me a call at 858-414-9938 Or schedule a complimentary consultation.
