How Do Entrepreneurs Keep Score?
This week we welcome Guest Blogger Maurice Marwood, President of MMARCO International Services Inc. Great topic for all Entrepreneurs to take notice!
As an entrepreneur, can you be confident of the longer term viability of your business? How do you know? What financial tools and yardsticks do you use to measure and track viability? Is your expertise in marketing, selling, engineering and product or service development, rather than financial management?
In addition to these day-to-day operational disciplines, the entrepreneur must also process sufficient knowledge to remain focused on the conduct of the business for profit from operations. The role of financial management is much more closely connected to operational activities than is generally assumed; certainly, the results of all management is to identify the most efficient uses of the resources of the business, and manage the funds necessary to support operations.
Given these overwhelming facts of business life, financial statements and reports must be regular management tools rather than esoteric data presented once in a while at reporting time. They should be used routinely to identify strengths and weaknesses, and to identify and isolate trouble spots before they reach crisis proportions. The three most widely used financial statements include the Income Statement, the Balance Sheet and the Cash Flow Statement.
Financial management principles and techniques can be applied to every area of operations. They can identify sources of profit and the flow of cash through your business and point the way to the most efficient use of those funds. They can facilitate your long term planning by assessing the financial implications of your proposed course of action.
If you require to raise funds, Cost-of-Capital study can help you identify the least expensive method. A Net-Present-Value study will identify the investment projects with the greatest growth potential. Or if you are facing cost overruns, a Cash Receipts Analysis will help you spot the cause. Discounted cash flow analysis techniques can reveal flaws in ill-advised investments.
Cash flow and cash flow management tools are critical to avoid liquidity disasters. Many profitable companies have gone out of business because they did not manage their cash well – profit is not cash. In contrast, an unprofitable business can remain viable for many years if it carefully manages cash flow.
You do not have to be an accountant, auditor, banker or investment professional to make full use of the various financial management tools. You only need to have a working knowledge of what it takes to put the information to proper user. Good financial reports can provide new insight into the inner workings of your company, and put you in a better position to make better informed management decisions to help your business grow and prosper.
Do not abdicate this important responsibility to your accountant. An important first step would be to take a course in Finance for the Non-Financial Manager.
Maurice Marwood, Guest Blogger
MMARCO International Services Inc.