Over the past several weeks, we’ve taken a deep dive into our Member 360 tool, one of the multiple proprietary business tools that we make available to our CEOs and business owners. This week the series continues as we look at Financial Management.
Taking a more in depth look at each topic and rating your business in each area is important for the health and growth of your company. Financial management of your company is just one piece of the Member 360. If you haven’t seen the full evaluation tool, you access the full MEMBER 360 here.
This week, we’ll look at the FINANCIAL MANAGEMENT questions and why they are important.
Are your financial statements current?
Having up to date financial statements that are accurate is critical to the financial well-being of your company. The importance of this cannot be understated. They are important to company leaders and managers as a means of communicating past successes as well as future expectations. While that last sentence sounds like it might only pertain to large companies and shareholders, it’s more than critical for small and mid-size business to know these things, as well. Where many smaller businesses find themselves challenged is in the bookkeeping data entry work of receivables and payables. Unfortunately, it’s not uncommon to find smaller business owners waiting until the end the quarter (or even the end of the year) to enter essential financial data. Without timely date entry, it’s impossible to have current financial statements for your business, and this puts your business at tremendous risk. How does your business rate?
Do you understand your financial statements and review them regularly?
Financial statements provide a picture of the performance, financial position, and cash flows of a business. An understanding of what your income statement, balance sheet, statement of cash flows, statement of changes in equity, and other financial documents is critical. Otherwise, you are just looking at a bunch of numbers without the capacity to use them as a strategic decision making tool for the growth and health of your company. If your accountant hands you financials and your eyes cross, take the time to sit with him or her and gain a full understanding of the what the number actually mean. If you feel good about this, rate yourself highly!
We use our financial statements as decision-making tools
When you make decisions on the direction of the company, are you using your current financials as a guide? Revenues, expenses, profit or loss, assets, liabilities, equity, changes in equity, cash flow and other metrics can really help you make the best decision on changes that need to be made (if any). Are you using all available information to make the most informed strategic choices?
Are you using key performance indicators (KPI’s) to measure key business drivers?
KPI’s are a great way to gauge your business’ health. Your “gut” may be telling you that your business is doing well, but concrete numbers show the facts. KPI’s to consider may be gross profit margin, net profit, net profit margins, aging accounts receivable, and current ratio. Knowing what is hanging out there and not getting paid (aging reports) and knowing your specific margins by product/service help you drive decisions to maximize your profitability.
Do we understand and forecast our cash position to easily meet the demands of our business?
With smaller businesses, this is REALLY important. Is your cash flow adequate to meet payroll, overhead expenses, marketing, and professional services you require? Or, are you constantly teetering on the edge and require additional financing each year or month? Reviewing your aging accounts receivable, your net margins, and your current ratio can provide you direction on what to tackle first. Are you doing a good job forecasting future cash flow needs? If you know you have a “seasonal” lull in cash, do you have a plan in place to mitigate it?
Are your fixed expenses (overhead) at a minimum?
If you want to increase the profits for your business, reducing fixed costs is one of the ways to do it. They have way of creeping up when business is good because may feel you can afford to add them. The problem is, once added, they can be more difficult to cut back when times are tight. Fixed expenses may include rent(s), salaries, insurance, depreciation, and employee benefits. You can see why these may be harder to reduce. How well are you managing (minimizing) yours?
Do you use benchmarking and financial ratios to compare ourselves with others in our industry?
Doing this routinely can be a gold mind of information for your company. How is the competition in your industry doing? What are their ratios? How are they keeping overhead low? What’s the average profit margin for your industry? Bench-marking can lead you to surprising revelations about your company. Maybe you ARE the top of your industry and major changes may not be needed. If you are in this position, congratulations! If you’re not, you’re taking the right steps by strategic planning against valid industry information.
Our MEMBER 360 is an incredibly valuable tool when you look at each question in depth, as we have done here. This is the type of exercise we go through in LXCouncil meetings with our CEOs and business owners. If you’re a CEO, business owner, or entrepreneur who really wants to build a wildly successful business, you need more than a dream — you need a dream team.
Simply put, that’s what LXCouncil is … it’s a dream team comprised of other business owners, just like you. Peer advisory councils are an entrepreneur’s secret weapon. Members gain access
to knowledge and insights that their competitors often lack. That extra edge can really make
a big difference in how a company performs in a competitive marketplace.
If you are interested in learning more about becoming part of a peer advisory council, let’s start a conversation!