There are 33.5 million small to mid-sized businesses in America with $12 trillion market value. But the failure rate of all businesses is incredibly high. 22% of business startups fail in the first year, and 50% of new businesses fail within the first five years – and 70% fail within ten years.* 

Operational savvy doesn’t always come easy, and a business owner sometimes, out of necessity, has to put on hats they aren’t equipped.  I often hear “But I’m not an accountant!” and I understand.  Still, if you are going to own a business, you have to take responsibility for the financial aspects of your business as well as other operations and product/service development and sales.  You just have to choose what direction to go to set yourself up for success – whether that means handling the financial practices yourself, hiring a fractional CFO, or hiring a financial specialist as an employee.

Whether you decide to have a separate CFO or decide to wear the hat yourself for a while, the first crucial step is to grasp the foundational principles of financial management.  I break this down into a 4-pillar process to take small businesses to the next level – helping business owners see obstacles coming and develop disciplines.

These pillars are:

1. Understanding: Knowing the basics about typical financial inputs and what the data reveals.

The fundamental inputs for most businesses include:

• Revenue: The income generated from your products or services
• Expenses: all costs involved in running your business
• Profit: what is left after expenses are deducted from revenue – a healthy profit is your ultimate goal
• Cash flow: the movement of money in and out of your business, determining your operational flexibility and financial stability. 

2. Forecasting and Budgeting: predicting expected results and cash flow and creating a budget.

Forecasting is a core process to predict your company’s results and financial performance. While it’s always inexact, it is a view of your company based on historical data, current market trends, and expected future events. It’s a critical component of strategic planning, providing the insights needed to make informed decisions.

Budgeting is the process of creating a financial plan for your business. It translates the insights gained from forecasting into detailed action plans, allocating resources to achieve strategic goals.

3. Analyzing: using a weekly dashboard to determine where you stand.

Weekly reporting provides an immediate view of your business’s financial health, enabling quick adjustments to operations and strategy. A weekly dashboard centralizes critical financial data, offering a snapshot of performance and trends at a glance.

Components of a Weekly Dashboard:

• Cash and Inventory Position: This includes the current cash balance and any significant changes from the previous week (i.e. from costs) as well as your current inventory status, including any critical shortages or overstocks
• Accounts Receivable: Overview of outstanding invoices, highlighting any past-due accounts
• Accounts Payable: Summary of upcoming and overdue payments
• Sales Figures: Weekly sales totals compared to projections and historical data.

4. Reporting and Reviewing: producing and going over monthly CFO reports to stay aligned with your mission.

Financial reporting is critical for businesses of all sizes, providing key insights into financial performance, health, and the decision-making process. Financial transparency is the key to operating a business with integrity.  Monthly CFO reports form the basis of communication with stakeholders, including investors, creditors, and regulatory bodies.

The key components of a monthly CFO report circle us back around to item 1.

• Income Statement: Shows revenue, expenses, and profit over a specific period, highlighting the company’s operational efficiency
• Balance Sheet: Provides a snapshot of the company’s assets, liabilities, and equity at a specific point in time, indicating financial stability
• Cash Flow Statement: Details the inflows and outflows of cash, offering insights into the company’s liquidity and ability to generate cash.

Additional Analysis reports such as forecast-to-actual, historical-to-actual, KPI’s, asset and cash flow efficiency, and Continual Improvement reports can be very helpful for wise leadership decision-making.

There’s a lot more to running a business than creating a product or service and selling it. Be sure you handle your business financial operations with integrity, consistency, and open-mindedness.

I’m here to help! Contact me for a conversation about where you currently stand and how, together, we can strengthen your business using the four pillars.

* Statistics per: U.S. Small Business Administration (SBA) and the U.S. Bureau of Labor Statistics