There is one simple - but compelling - reason to ensure that your financial ship is under control. To succeed.

The majority of new businesses fail primarily due to lack of good financial management. But success, or lack of failure, aren't the only benefits of good financial management.

It also affects -
 

• funding - how much and on what terms you can get funding to establish and grow your business

• production - the raw materials you can afford to buy, the labor you can afford for production, how much inventory you can carry and how wide your distribution channel can be and therefore what products you can make and sell

• sales and marketing - how much you can advertise and promote your products or services

• operations - the physical resources and human resources you can afford to support operations

• profitability - it does not automatically follow that hard work will produce profits.

So, what is this thing called financial management that is so critical to success in business?

What is financial management?

It is the use of financial statements to reflect the financial condition of your business to identify its relative strengths and weaknesses.

It is all about planning: you must have a well-thought-out financial plan, with established goals, and a system to keep track of how you are progressing toward those goals. Quite simply: where do you want to go, how do you plan to get there, and what is your progress towards that goal? To plan and control - and for others to know of your plans and progress - you'll need to use financial management tools.

Financial management tools
 

• Basic financial statements - Balance Sheet, Income Statement [a.k.a. Profit & Loss], and the books and records and techniques that are used to gather and sort information from which the statements are produced

• Analyses - various methods to compare your business with similar businesses and to track  your own performance over time. Ratios, break-even, pricing...

• Forecasts - pro forma income statements and cash flow statements to forecast future profitability and cash flows [and we'll see that profitability and cash flow don't always go together - you have to watch and manage both!]

• Planning - short term, long term, strategic, operational, capital...

• Financing - types and sources to finance operations, capital investment, buy-sell for financing changes in ownership

• Management - controls to ensure that your plans are kept relevant and that progress is measured consistently and accurately. [We'll see that being able to predict the future perfectly is NOT the goal or magical attribute - and that it is NOT even necessary that performance unfolds exactly as you predicted it would... the real key is to UNDERSTAND what the information is telling you and making the correct adjustments.]

These are the things our articles will address.

Now, every business is different. Every business owner / manager is different. So, financial plans will be different. The challenge is to work out what is right for you. And that's the other area where we can help - supporting you and helping you get it right for you. Coaching if you will... one of our services is to be available for consultation in the relatively small quantities that you might need of our time to help you establish and fine-tune a system that will work for you.

And don't worry about whether you have an MBA in finance and can spout a lot of technical jargon... financial management and success isn't mastered with fancy jargon. It is mostly KISS principle basics - a good plan and just enough of the right controls will always beat an elaborate plan and / or a profusion of ineffective controls! Every time.