For any new venture it can be daunting to answer important financial questions such as when will revenue occur, when will your business become profitable and how much financing will you need.
It is vital for any new company to know the financial numbers that can provide answers to these questions. Generally speaking, knowing your start-up costs, your operating costs and cash flow will put you in a good position to know where your business stands.
Imagine you are the owner of a company with $5 million in sales. It has been operating for a number of years, and is profitable, but you want to grow the business.
Say you would like to double sales over the next five years. Before you start the growth process, you should ask yourself: why double sales? What will a doubling in sales mean to profits? What cash is needed to double sales? Quite often, you know that you are profitable but are not satisfied with the level of profits and you do not know exactly why profits are where they are or what should be done to increase them.
Internal controls are needed to
1) Protect the cash and other assets of a business,
2) Maintain the integrity of the financial information used to make business decisions and assist in fraud detection; and
3) Maintain compliance with laws and regulations, especially those where being offside can cause major risk to your company.
In small business, the owner can control every single transaction, and this is a very good control mechanism. However, it severely limits the size a company can get.
How can you outsmart your competition and grow your company?
Let’s say you are the owner of a small company. It is profitable, because bills are paid and money is in the bank. However, the company is not growing or becoming more profitable.
Many companies devise corporate strategies to achieve these goals and some include very specific interim goals. But a great number of strategies are poorly executed and goals are not achieved.
Does Your Business Require Financing?
Before you can answer this question, you have to ask yourself:
Does your business need cash in the form of new loans or investment? Perhaps the answer is yes. But there may be cash hidden on the balance sheet in your company under different names.
Consider the following:
You have decided to sell your business several years from now as part of your retirement.
This allows you to make some changes so can maximize the price.
A purchaser buys a business that has to operate independently of the former owner. If all the procedures, control mechanisms and valuable information is only in the mind of the owner, there is nothing to sell. The business may be a very good business, but if it is not a system, it cannot be sold, or sold for a good price. So, if information and systems are not in place, now is the time to work on that.
Cash flow is the life blood of every business. All businesses should focus on it, even the most profitable. But if you run a seasonal business, are in the start-up phase, are growing rapidly, or are in financial difficulty, you’ll need to pay particular attention to your cash flow. The following are key actions you can take to improve it.
