Lack of financial management is a primary cause of failure for value-added businesses.
Financial management starts with keeping records. There is an old saying that “you can’t manage what you can’t measure.” Records provide you the data needed to measure the activities of your business. In other words, records are the foundation for the financial management of your business.
After you have created a good set of records, you can begin constructing financial statements. These statements focus on the three main aspects of financial management: profitability (are you making money), liquidity (do you have enough cash) and solvency (how close are you to going broke). Financial statements tell you your business’s current financial status along with its past financial status. Historic statements can identify financial trends that will help you project the future financial status of your business.
A good set of records can also help you budget future potential profitability of various changes in your business. These budgets help you make meaningful decisions about the future course of your business.
If your business is experiencing financial stress, financial analysis and management can help you identify and analyze alternative scenarios for relieving financial stress.
For more information on this topic, see the links listed below of articles posted on related Web sites. Also see the worksheets and calculators available on the Business Workbench.
Links checked July 2014.