As we work with small businesses and entrepreneurs we are noticing that many view the preparation of Financial Statements as being mainly for the use of their lenders and the taxing authorities. While we realize that those two groups do need accurate and timely financial statements, small businesses should be taking the lead from large corporations and using their financial statements to manage their daily business. We would encourage small business owners to focus on Financial Management as well.
What is Financial Management? It is the process of recording what money is coming in and going out of your business and using that information to generate reports which help you to make good decisions in running your business. Information from financial management is used by both internal and external decision makers.
Six Ways Financial Management Helps Your Business Succeed:
1. Cash Flow: Clearly understand how much money (cash) comes into and goes out of your business and WHEN it flows into and out of your business.
2. Manage Customers and Sales: Know who your customers are, what they purchase, how much they purchase, and when they pay. Use this data to compare your actual Accounts Receivable Collection timeline to the terms that you are offering your customers.
3. Manage Purchases and Production: Know who your vendors are; what and how much you purchase from them and at what cost, and what your payment terms are with your vendors (when you have to pay them). If you are manufacturing a product, know how much you are producing in a given time period and what it costs to produce your product.
4. Insight and Decision Making: Make informed strategic decisions regarding pricing your product for profitability, marketing, employment, growth, and financing.
5. Funding: Complete and accurate financial statements are needed for finding funding through banks and outside investors.
6. Compliance: Report your company’s income, expenses, and payroll accurately to the IRS and your state government.
We are developing a Webinar to teach small business owners how to use their financial statement for financial management. Stay tuned.