Understanding Your Business Finances
If you want to be successful in your business it’s not enough just being good at your core trade or profession, it’s vital to have a good understanding of marketing, know how to deal with employees and have a grasp of the financial aspects of your business. On the latter, you need to:
- Work out your margins on every product and service in your business and across divisions, branches, salespersons, projects, customer segments, or suppliers. This information is critical to profitability since it enables you to eliminate or improve poor performers and can now be harvested in a few seconds from everyday accounting software.
- Prepare a monthly cash flow forecast for the year ahead so you know exactly what working capital you will need and where your cash is going.
- Know your costs. Reduce these where possible, prepare a simple budget, and import this into your accounting software. Any costs over budget will need attention.
- Learn to understand your financials. Get your accountant to explain them to you and make them the first step in the financial management of your business, not the last.
- Prepare a concise monthly management report. Get yourself into the routine of analysing your figures every month by sitting down with your accountant. The report should include monthly Profit and Loss Accounts, cash flow statements, aged debtors and creditors plus other key factors such as prospect conversion rates, labour productivity rate or your average $ sale.
If you need help with getting a better grip on the financial aspects of your business, call this free no-obligation Business Advice Line: 0800 ASK NICK or send your questions by email.