The Financial Needs of a Modern Business
Mar 29, 2020
The modern business has a different set of financial requirements to a traditional business.
Modern businesses may have lumpy cash flow where they run a campaign to sell a service. And then spend the next few months delivering without any further income.
But like every business, the modern business owner needs:
- to understand the core financial concepts,
- to develop focused management skills, and
- to create a planned growth strategy.
Knowing how to do the bookkeeping is a useful skill to learn; but what's more important is to understand and interpret the numbers. Use the numbers to tell the story of the business. Interpreting the numbers provides further insights into the business helping you to make good business decisions.
A profitable modern business requires the owner to have a broad range of skills and knowledge.
Core Financial Concepts
Core financial concepts are the foundations of business numbers. The basic building blocks on which everything else is developed. Running a business without these is like running a marathon blindfolded without any external assistance.
It doesn't matter whether you're just starting out or been in business for a few years, these are basic skills to have.
I met a gentleman at a conference a couple of years ago who confessed to me that whilst he'd been in business for 25 years, he had absolutely no idea what the reports meant. He knew that business had been slowly going down but that was all. At a certain level, hats off to him for still being in business after 25 years without knowing his numbers. But I wondered how much more money he would have made if he had, at a minimum, known the core financial concepts.
Focused Management Skills
The Peter Principle states that "in a hierarchy every employee rises to the level of his incompetence". The level of incompetence mostly relates to lack of good management skills.
It's no surprise to me that business owners struggle managing their team, knowing how to handle staff members who refuse to follow procedures and knowing how to motivate and inspire their team.
Management skills in the context of numbers are no different. It's a skill set that needs to be developed. The basis is knowing the numbers and then using that knowledge to look for trends. To delve deeper to find out the reasons why the numbers are what they are. Then using those insights to make decisions to make changes or tweaks to improve the results in the next month.
Business growth is what we're all seeking. We want more profits and in some cases, we want a big organisation or to reach a certain magical revenue figure.
Whatever, growth is for you, planning is important.
Growth without planning is a recipe for disaster. I've seen businesses that were in great shape, with a good team, a stable regular client base and significant profits fall apart when an opportunity came their way that meant increasing business exponentially.
They didn't have a plan in place and as a result had to hire new team members without giving them the proper training, cutting corners to deliver services in a timely manner, reducing the quality of their services for existing clients in order to provide services to the new clients.
Due to higher costs, lower productivity and a lack of attention to the numbers, profits plummeted, clients became disenchanted and left. The business that had been going along really well was destroyed.
Planning for growth is not just about the numbers, it's also about involving your team in your plans, encouraging them to feel part of the future and in doing so inspiring them to do better. In doing so, you also create a loyal team.
A profitable modern business requires the owner to understand core financial concepts, to develop focused management skills and create a planned growth strategy.