Helping overwhelmed small business owners duplicate themselves so doing business is fun again is the daily duty of all the staff at Viral Solutions. Christine Kelly and I have been doing just that for decades. However, growing revenue and being profitable do not always go hand-in-hand. We’ve grown from a two-person local operation to a multinational client centered firm with a very talented and diverse team. Efficiently measuring our financial performance helped make this growth possible.
The following are 9 important financial tools any business owner should have to effectively manage their company.
Short-term cash flow. This measurement provides a six-to-eight-week projection of the inflow and outflow of funds through the business, which needs to be updated weekly on a revolving basis. We have this front and center on our dashboard and it updates automatically.
Written Terms of Agreement. These measures provide guidance to help educate customers, thereby decreasing the risks for your company.
Annual flexible budget. This plan should take into account fixed, variable and semi-variable expenses for flux in volume month to month (lowest/average/highest). This includes profit and identifies the break-even volume of business.
Break-even point. A clear identification of what makes up break-even for the business helps an owner understand what costs are controllable. When these costs are changed in “what if” models, owners can determine how different actions affect the break-even point and volume.
Variance report. This measure compares your planned budget to actual costs. A breakdown of this variance report into departments is essential so that each can be reviewed by the department manager who should be held accountable for results.
Annual cash flow. A projection with the next 12 month’s ebb and flow allows you to identify any short-term requirements for loans or line of credit. It also helps demonstrate to a bank how your company will pay back the loans.
Gross margins analysis. Information about gross margins helps you understand the revenue mix of each profit center, its relationship to pricing, and the gross margin contribution each brings to cover overhead and to provide profits.
Understanding of corporate ratio analysis. Why? Because this is the way that your bank and outside investors look at your business. It is also an excellent internal tool for measuring location results as a basis for management incentives. Example: Three grocery stores at 60%, 30% and 10% of revenue. Which one is most profitable and which one has improved the most as measured against its own revenue and the company as a whole. To put all three on an even playing field requires the use of ratio analysis.
Strong communication with outside professionals. Solid financial planning also demands the specialized skills of bankers, lawyers, tax advisers, insurance brokers and/or investment brokers, software programmers and other consultants. The Controller/Accountant needs to take an active role in the long-term direction of the business in activities such as bank presentations, business plans, wage and salary review structure, bonuses and incentives, and long-term training.
Copyright 2015 Viral Solutions LLC
by Thomas von Ahn | Chief Elephant Slayer