Step One To A Better Business – Financial Mastery
Following on from my last article on BusinessBanter.com, this one will talk about Financial Mastery. Imagine you calling the most senior person in your business and telling them you are going away for 3 months and will not be contactable.
What business will you come back to?
After reading the next few articles you will learn how to make the business you return to a prosperous one giving you a passive income.
Step one is mastery – Mastery
Mastery will take a business from chaos to control.
There are 4 parts to this step:-
- Destination mastery was covered in the last article.
- Financial Mastery
- Delivery Mastery
- Time mastery
This week we will cover Financial Mastery
A lot of businesses grow and have real issues. Often it is because the owner upto now has managed profits and cashflow in their head and growth has meant this is no longer possible.
Financial mastery needs to be achieved well before this growth to ensure this will not be a backward step.
Producing a monthly profit and loss account and cashflow forecast will help.
Reviewing the information and helping spot future issues well before they become costly is a key benefit.
A good example of this is companies that record the gross profit percentage per types of products sold. Any significant variance in this metric can lead to any of the following being identified.
- Excessive discounting by some members of the sales team keen to hit a sales target. Often controls need to be put in place to stop the discounting. These can be that a more senior manager needs to sign off discounts. In many cases, when this happens it shows that sales training is inadequate in the organisation. Too often businesses tighten controls, but do not identify the training need.
- Data entry errors. I used monthly profit and loss accounts to spot that a business was converting Euro invoices twice in error. This error disguised the over ordering on some of the purchasing team.
- Bad buying. Analysing gross profit trends can identify stock levels that are high compared to average purchases. This can help focus on areas that show where the problem might be. Problems such as buying goods that are not selling, high amounts of damaged or stolen goods can be identified from this review.
Producing a budget or a forecast profit and loss account can be very powerful.
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The process of producing these reports forces owners to think of all the interdependencies (E.g. if I need to increases sales in September I need to have 3 extra sales people and so I need to start the hiring process in June). When owners plan in their head key areas are missed causing crisis management.
An example of this is where owners hire too quickly because they need someone now. The neighbour’s brother is hired because he is available rather than being a good match to a well thought out job spec and interview process.
You do not need to be a qualified accountant to do financial mastery. You just need to have some accounting software or ask a bookkeeper to set up a template in excel for you to follow.
Failure to do it can result in attempted growth leading a business to bankruptcy in extreme cases.
There you go – Financial mastery to a better business. Watch this space for Delivery Mastery in my next article.