Article: XX

Library Home

Getting Started

Planning

Library Index

Policies | Site Map | Guarantee | FAQs | Contact Us

Need More Help?

Find out more about our unique educational program!

Ask Our Experts

Ask a question today!

Blog | Courses | eBooks

Home Courses
Ebooks Resources
About LaunchX

Starting a Business? Why You Need to Know Financial Management

Financial management is an often overlooked necessity for a growing business. In most cases, it is overlooked simply because the entrepreneur is unsure of how to use financial reports to help guide future decisions. For solo or micro businesses with no plans for growth, neglecting to develop financial projections is not the end of the world, but if you have any plans for growth, solid financial management is critical from startup on.

Know Where Your Money Comes From and Where It Is Going

Accounting records your business's financial history -- it only tells you what has happened with the venture's money in the past. However, by analyzing financial reports that come from an accurate accounting system, the wide open roads of the future come into clearer focus. You can see where the bulk of your income comes from (specific services, product lines, sales staff) and you can alter your marketing accordingly. You can see where the money goes and make decisions about managing expenses.

Use Financial Ratios to Check Your Business's Health

Financial ratios are fairly easy to calculate and can reveal all sorts of interesting information about the health of your business. And, you can easily rate how your business compares to similar companies by comparing your ratios to the standard industry ratios. These ratios are not absolute, but they can tell you where you are doing things right and where you might be missing the boat.

If any of your numbers are out of whack, a little research into how your competitors manage those expenses could increase your bottom line. Whether you need to tweak the procedures, alter operations, streamline competencies, or shake up the staff, evaluating the company's financial ratios will help you know where to look in developing a strategic plan for improving the venture.

See Patterns in Your Business

Analyzing financial statements will also reveal patterns in your business. Sales trends come into focus, whether impacted by the season, changing consumer taste, or other factors, that allow you to better manage inventory, staff levels, and sales promotions. Variable expenses can be better monitored as well, and unusual or unauthorized expenditures will be identified in a timely manner. Thus, any occasions of theft, embezzlement or other questionable activity can be handled before the loss is too great.

Be Prepared for Change and Growth

Periods of change are the most difficult to manage. It is common for businesses to stumble, and even fail, during times of sudden or extreme growth. Often, the growth is unplanned and only occurs because some external factor triggers expansion. That factor can be anything from landing a large account to just finding a great deal on a second location space, but without planning for that growth, very few businesses survive intact. If you are planning to ever grow your business, that idea should be incorporated into financial planning from the start.

Financial planning is more than just reviewing the financial statements every so often. Rather, it is managing the money for the future by making justifiable projections based on past performance and using that knowledge to realistically fund the ideas in the company's strategic plan. Most importantly, good financial planning is the difference between running your own business...and the business running you.

About the Author

LaunchX.com is dedicated to training entrepreneurs to turn their good ideas into great companies. The LaunchX System provides step-by-step education in the mindset and skill set entrepreneurs need to succeed. Our program includes intensive seminar training, key business software, and specialized workbooks that teach you the fundamental skills you need to achieve your financial and worklife goals through entrepreneurship. Register today for our introductory course and see what LaunchX can do for you!