I’ve owned my share of small and mid-sized businesses throughout my career and if there is one thing I know for sure…..it’s what keeps a business owner up at night. Cash…how much is coming in and how much is going out.
I can honestly say that every company I founded and operated was successful. I will admit that at first they succeeded in spite of myself. And, like many business owners my mantra was sell…sell…sell.
What I know today, however, is the most important thing a business owner can do is consistently measure their company’s performance – it’s called financial analysis. Don’t let your eyes glaze over at the mention of financial analysis, it’s easier than you think. You can read more in an article I authored for the January, 2010 Nevada Business Journal at http://www.nbj.com/issue/0110/9/2167 or check out CFO Genie at www.ceo1stop.com
Here are some article highlights:
- Many small and mid-sized business owners believe that their accountant, or accounting software tells them everything they need to know about their financials. Not true. Accounting tells how much profit was made. What a business owner really needs to know is how much profit they should have made.
- Even if numbers aren’t a strength, a business owner will still need to understand what they mean in order to operate a business. Without this analysis an owner might very well proceed never knowing where, or even that, the company is leaking tremendous amounts of cash. Consider the following: on average, small to mid-sized companies often fail to capture between 10 to 30% of their revenues as profit. The math is simple; say a company does $1,000,000 in sales with a profit of 10 percent or $100,000. Add 15% of the sales to the profit and you have $250,000. Without making one additional sale, the company has increased its profit line 250 percent by knowing where to look for the cash leakage and then taking corrective action.
- The perception is that financial analysis is a “foreign” language that can only be deciphered by a trained financial expert. In fact, financial analysis can be translated into easy-to-understand “English.” When this is done, any business owner can immediately identify areas in which their company is experiencing minor to serious financial distress which causes hard earned revenues to escape before reaching the bottom line profits. Demystifying the language of financial statements and not depending on others to interpret numbers is the key to taking control.
Fortunately there are affordable business performance software packages that are written for the non-financial professional.
Check out CFO Genie.
Max Gregorich, CEO1Stop
Tags: business consultant, financial analysis, financial software, small business, small business software