The Small Business Survival Course - Financials

Jim Blasingame

This is the first article in a series dealing with operating your business better this year. Let's start with financial fundamentals.

Regardless of the size of the business, the ultimate responsibility for operating with solid financial fundamentals rests with the CEO.

If you're a small business owner, that's you.

Statistics show that over half of small businesses fail within the first four years. Clearly, small business failures would be significantly reduced if, before a business opened, the owner was required to pass the Small Business Success Course (SBSC), which we will cover over the next few weeks.

Below are the SBSC financial fundamentals.

  • Learn about the importance of producing regular (at least quarterly) financial statements (balance sheet and profit-and-loss), including what can happen without regular statements. 
  • Discover and learn to use all of the inexpensive and "idiot proof" financial management tools available today. 
  • Identify the value of hiring at least a part-time accountant, and/or engaging the services of an accounting firm. Compare and contrast this expense with the cost of failure. 
  • Learn how to track sales-to-expense ratios each month in order to know when to adjust spending. 
  • Understand how to monitor inventory levels with regard to projected sales, receivables and cash. 
  • Learn how to calculate Accounts Receivable days and Accounts Payable days, and understand their relationship to each other and impact on cash flow and capital requirements. 
  • Develop a long-term capitalization strategy that blends retained earnings with short and long-term bank debt. 
  • Identify the many critical financial indicators that are revealed by an understanding of the relationship between the profit-and-loss statement and balance sheet 
  • When a business has an increase in sales, learn how that growth could actually have a negative impact. 
  • When a business is not profitable, learn how to identify the top three financial indicators that could point to impediments to profitability.

And finally, arguably the most important SBSC element: 

  • Develop a complete understanding of the difference between cash flow and accounting.

If you can pass the financial curriculum of the Small Business Success Course, your chances of achieving operating and financial success in your small business will increase exponentially.

Now for some tough love: Don't start a business unless you can pass the SBSC.

And if you already own a small business, hopefully the cold sweat popping out on your forehead right now will motivate you to kick your financial education into high gear by taking the SBSC.

Write this on a rock... Even if you hire someone to manage the financial part of your business, you cannot delegate the ultimate responsibility for your business's financial performance; that belongs to you -- 100%.

Jim Blasingame
Small Business Expert and host of The Small Business Advocate Show
©2008 All Rights Reserved


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