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Improve
your business's health with this advice for managing your business's
financial information.
Your
ability to manage your business effectively will be largely determined by
the completeness and accuracy of the information you have about your current
business activities. Successful entrepreneurs are very aware of the
important numbers that determine the health of their businesses.
Fortunately
today, with modern computer technology, it's easier than ever to set up a
management information system that enables you to get the financial numbers
you need to make better business decisions.
Managing
Your Information
The quality of your information will determine the quality of your business.
You can only make good business decisions if you have excellent data that
you can refer to on a regular basis. Setting up a management information
system for your business is central to your long-term success.
The
best time to set up an accounting system is before you start your business.
Prepare a complete business plan in advance of starting your business with
clear sales goals for every day, week and month. Estimate expenses in every
key area and project your expected profitability (or loss) for every month.
There
are specific kinds of financial information and numbers you need to manage
your business. Like the vital functions of the human body, these critical
success factors determine the health of your business.
One
of these keys to business health is determining your cash flow. Add up your
total sales revenues each day, week and month. Determine the number of
individual sales you're making in each time period and the average size of
each sale. Look for trends in each of these numbers.
Analyze
the quality as well as the quantity of your sales. Determine the gross and
net profit you're earning on each sale and the profit you're earning per
customer. Analyze the trends in these numbers.
Know
Your Numbers
There are certain numbers you should know at the end of every business day:
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How
much cash do you have in the bank or on hand?
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What
were the exact sales for that day?
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How
much money was received that day?
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How
much does your company owe to suppliers?
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How
much does your company owe to the bank?
-
What's
the value of your inventory and goods on hand for sale?
-
What's
your daily net worth after deducting all amounts owed and payable?
Your
daily financial statements will combine together to create your monthly
financial statements. Once you have these, ask yourself:
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What
were your total sales for the month?
-
What
were your total costs and expenses for the month?
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What
are your exact profits or losses for the month?
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What
is the net value of your business at the end of the month?
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What
are the trends in these numbers?
Keep
close eyes on the cash coming in and out of your business. Be aware of cash
inflows and outflows on a daily basis and keep this advice in mind:
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Payment from customers is critical for cash flow. Determine
the amounts owed to you by customers everyday and speed up collection of sales revenues as much as you can.
-
Be careful about granting credit to new customers. Have very
clear terms of payment for your sales and move quickly to demand payment from a slow-paying customer. Insist upon cash
in advance if there's a possibility of non-payment and request a 50-percent deposit on all orders
before you spend time and money to produce or acquire the product.
-
Know how much you owe to your bank and other suppliers or
vendors. Require a monthly breakdown of the amounts payable to your creditors. If you're short on cash, delay and defer
payment whenever possible. Preserve cash at all times.
-
Personally approve or authorize all expenditures before
they're made. Don't allow anyone but yourself to sign checks or to authorize expenditures. Watch the money in your business
carefully--no one cares about your business or your money as much as you do.
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Always have a complete picture of the financial health of your
business. Update the financial results of business every month. At the end of each month, compare your projected
sales, costs and profits with the actual results. Look for variances between your projections and the actual
amounts earned or spent. When necessary, act immediately to make additional sales or cut costs.
Most
entrepreneurs aren't particularly good at accounting or financial
statements. Fortunately, you don't have to pay attention to every single
financial detail of your business. You can hire a bookkeeper or accountant
to do this for you.
To
be successful, you must know the critical success factors and key numbers of
your business every day, week and month. You should take time each day to
evaluate your progress. You should take time each month to study your
financial statements and the overall health of your business.
Most
importantly, you should study both the variations from projections and the
trends of the numbers in your business. Large variations between your
projected numbers and the actual numbers indicate a poor understanding of
your business. Ignoring a downward trend in your sales or profitability can
be dangerous to the health of your business over time.
Brian
Tracy is the "Success Secrets" coach at Entrepreneur.com and one
of
America
's leading authorities on entrepreneurial development. He's produced more
than 300 audio and video learning programs that cover the entire spectrum of
human and corporate performance through his company, Brian Tracy
International.
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