In many businesses at least one of these three bases has a weakness due to lack of knowledge or lack of practice. Many entrepreneurs start a business and discover that the professional knowledge that made them enter the industry is not enough. They must perform all the functions in the business well and they must be good sales and marketing people, vigilant financial managers, in full control of their time and motivated to keep growing.
What exactly does each of these bases include and how can you support your business better?
Proper Financial Management
Business management usually starts with economic and financial control of the business. When a business owner knows where he stands financially it is easy for him to make other decisions because financial control maps the business like a map that maps the area. Financial management gives a snapshot of where the business stands at any given time in front of budget estimates and in front of the business plan – goals versus execution.
From a financial point of view, running a business means understanding what the economic results of the business are, what the profitability of the business is, what the cash flow situation is and what is expected to happen in the business in the coming months. If you are turning over millions then you may need further advice on how to manage your wealth, in this instance you may want to look at William Montgomery Cerf.
Managing a Profit and Loss Report
A profit and loss report allows you to see how much the business has made or lost each month. It is advisable not to rely on the profit and loss report given by the accountant, but to create an economic profit and loss report that really reflects what is happening in the business. The profit and loss statement is checked against the work plan and budget, which provide another parameter that helps to pinpoint the situation.
A profitability report makes it possible to examine the actual cost against the quotation given to the customer. It allows business owners to see if there is a match between the planned profitability (quotation) and the real cost (product or service). This report is necessary for business owners in the areas of services and products as it enables real-time troubleshooting.
Cash Flow Report
A cash flow report tries to predict the status of your bank account, and what your income and expenditure will look like at any given moment in the coming months. A recommendation is to build the cash flow report on your own in the first step, and only after you understand how cash flow works and how to make forecasts with it, switch to using cash flow management software. How does the report help in proper business management? On the basis of cash flow, it is possible to make decisions of surpluses and budget deficits: invest in recruiting employees or increase the marketing budget when there are surpluses, or prepare by taking credit when deficiencies are expected.