Financial Management
Financial Management
Cash is king in a start-up company. Managing revenue growth and earnings is essential to a public company. Maintaining profit and cash flow is the bread and butter for an emerging company. No matter what stage you are, achieving value for the shareholders is always the name of the game. In order to be successful at any of these objectives, you have to start with a good plan for financial management.
Financial planning
A financial plan is not just a budget for allocating spending. The plan should be a monthly outlook for the next 12 to 18 months and has to focus on the things that will affect your financial viability:
* Revenue
* Costs of goods and services sold
* Gross Profit
* Expenses for marketing, sales, development and administration
* Before tax profit
* After tax profit
* Cash flow
* Inventory
* Debt
* Capital spending
* Equity
The revenue plan that comes from the sales department is the top line for everything else that follows. The revenue plan has to be thoroughly thought out by the sales executive along with the finance, development, operations and marketing executives. All variable spending is going to be determined by how much is going to be sold by the company for the coming year. Spend a lot of time making sure that the revenue plan is realistic. It if is, the rest of the team can do their work with the revenue plan as the basis.
All the cost items can now be determined by manufacturing, services and support. These are all the costs of materials and labor to make the products and provide the services. In addition support and maintenance costs have to be estimated. This all is easy to say, but there is a lot of detailed work to itemize all the cost items to represent what is needed to support the sales projections. All of these costs are subtracted from the revenue number to determine the gross profit.
Each of the operating departments like sales, marketing, development, administration and finance has to do an expense budget. They have to project their spending over this same time period. Their budgets call for employees, contractors, tools, materials, equipment, software, facilities, travel and many other items. Their work is focused on supporting the sales and being ready for the delivery of future products and services.
Once having these budgets in place, you can now subtract all this expense from gross profit and determine your profit. The month by month cash flow can also be calculated so you can ensure that you have enough money to pay for all the budgeted items.
But this is not all. Other things affect your financial viability. Inventory for example has to be managed so that you don't have too little or too much. Easier said than done, this area can be one of the hardest things to manage and requires constant attention. You may have to take on some short term or long term debt in order to get you through a period of demand for additional cash. This too has to be managed to make sure payment as well as the amount of debt does not get out of hand. Capital goods, those things that probably cost more than $1,000, have to be paid for, as well as depreciated appropriately. The cash flow statement will capture all the capital spending, so you have to manage capital expense as rigorously as you do cost and expense. Of course, equity may have been taken by the company to fund its growth. This money is used for operations, and is also reflected in your cash position.
Important metrics
The financial plan has to be used as a management tool. You have to decide what is important to your business and set objectives and thresholds that your business must achieve. For example, these items can be monitored by the company's executives, and management action can be taken when objectives are not being met:
* Actual amount of revenue - shows if you are achieving your revenue objectives or not, month by month
* Revenue growth percentage - reflecting whether the revenue is growing as expected; with the industry and with your competitors
* Costs of goods - showing that the costs are within the budgeted targets
* Gross profit and gross profit margin percentage - showing that the gross margin targets are being met
* Expenses as a percentage of revenue - for each of the expense categories, is the actual spending within the budget and are they reasonable relative to other companies
* Profit and profit margin percentage - therefore, is the profit what was expected
* EBITDA (earnings before tax, depreciation and amortization) - and was the profit high quality
* Retained earnings - showing if the trends in earnings are on the right track
* Cash flow - this is like the checkbook, in that you know if you have money to pay the bills month after month
* Cash position - and what are the trends for cash flow so you can see if you are on track for the period
* Inventory turns - tells you if you are improving the efficiency of your manufacturing
* Utilization - tells you if your services people are being fully utilized
* Debt as a percentage of equity or assets - insuring that debt does not get out of proportion with your ability to pay it
* Return on equity or assets - telling shareholders that they are getting a good return on their investment
* Capital spending - making sure that you are not letting capital spending get out of hand
Watch the numbers
Whatever metrics you select to run your business, you will need a good management process to make sure the right people are monitoring the financial plan and that action is taken to deal with any variance from the plan. Most good companies make a habit of reviewing the key metrics every month. Some, like sales are monitored weekly. Whatever the frequency, make sure there is enough time to respond to the variances.
Make sure that everybody knows what the financial goals are and why they are important. Get people bought into the reasons for their importance and their commitment to do what it takes to meet them.
Financial Management - To learn more about this author, visit Bill Warner's Website.
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"Can you afford this server?" "How long does your cash last?" "When are you cash flow positive?" Every get these questions? As a business owner, if you cannot answer these questions, and many others, you may need some help with financial management.
Cash is king in a start-up company. Managing revenue growth and earnings is essential to a public company. Maintaining profit and cash flow is the bread and butter for an emerging company. No matter what stage you are, achieving value for the shareholders is always the name of the game. In order to be successful at any of these objectives, you have to start with a good plan for financial management.
Financial planning
A financial plan is not just a budget for allocating spending. The plan should be a monthly outlook for the next 12 to 18 months and has to focus on the things that will affect your financial viability:
* Revenue
* Costs of goods and services sold
* Gross Profit
* Expenses for marketing, sales, development and administration
* Before tax profit
* After tax profit
* Cash flow
* Inventory
* Debt
* Capital spending
* Equity
The revenue plan that comes from the sales department is the top line for everything else that follows. The revenue plan has to be thoroughly thought out by the sales executive along with the finance, development, operations and marketing executives. All variable spending is going to be determined by how much is going to be sold by the company for the coming year. Spend a lot of time making sure that the revenue plan is realistic. It if is, the rest of the team can do their work with the revenue plan as the basis.
All the cost items can now be determined by manufacturing, services and support. These are all the costs of materials and labor to make the products and provide the services. In addition support and maintenance costs have to be estimated. This all is easy to say, but there is a lot of detailed work to itemize all the cost items to represent what is needed to support the sales projections. All of these costs are subtracted from the revenue number to determine the gross profit.
Each of the operating departments like sales, marketing, development, administration and finance has to do an expense budget. They have to project their spending over this same time period. Their budgets call for employees, contractors, tools, materials, equipment, software, facilities, travel and many other items. Their work is focused on supporting the sales and being ready for the delivery of future products and services.
Once having these budgets in place, you can now subtract all this expense from gross profit and determine your profit. The month by month cash flow can also be calculated so you can ensure that you have enough money to pay for all the budgeted items.
But this is not all. Other things affect your financial viability. Inventory for example has to be managed so that you don't have too little or too much. Easier said than done, this area can be one of the hardest things to manage and requires constant attention. You may have to take on some short term or long term debt in order to get you through a period of demand for additional cash. This too has to be managed to make sure payment as well as the amount of debt does not get out of hand. Capital goods, those things that probably cost more than $1,000, have to be paid for, as well as depreciated appropriately. The cash flow statement will capture all the capital spending, so you have to manage capital expense as rigorously as you do cost and expense. Of course, equity may have been taken by the company to fund its growth. This money is used for operations, and is also reflected in your cash position.
Important metrics
The financial plan has to be used as a management tool. You have to decide what is important to your business and set objectives and thresholds that your business must achieve. For example, these items can be monitored by the company's executives, and management action can be taken when objectives are not being met:
* Actual amount of revenue - shows if you are achieving your revenue objectives or not, month by month
* Revenue growth percentage - reflecting whether the revenue is growing as expected; with the industry and with your competitors
* Costs of goods - showing that the costs are within the budgeted targets
* Gross profit and gross profit margin percentage - showing that the gross margin targets are being met
* Expenses as a percentage of revenue - for each of the expense categories, is the actual spending within the budget and are they reasonable relative to other companies
* Profit and profit margin percentage - therefore, is the profit what was expected
* EBITDA (earnings before tax, depreciation and amortization) - and was the profit high quality
* Retained earnings - showing if the trends in earnings are on the right track
* Cash flow - this is like the checkbook, in that you know if you have money to pay the bills month after month
* Cash position - and what are the trends for cash flow so you can see if you are on track for the period
* Inventory turns - tells you if you are improving the efficiency of your manufacturing
* Utilization - tells you if your services people are being fully utilized
* Debt as a percentage of equity or assets - insuring that debt does not get out of proportion with your ability to pay it
* Return on equity or assets - telling shareholders that they are getting a good return on their investment
* Capital spending - making sure that you are not letting capital spending get out of hand
Watch the numbers
Whatever metrics you select to run your business, you will need a good management process to make sure the right people are monitoring the financial plan and that action is taken to deal with any variance from the plan. Most good companies make a habit of reviewing the key metrics every month. Some, like sales are monitored weekly. Whatever the frequency, make sure there is enough time to respond to the variances.
Make sure that everybody knows what the financial goals are and why they are important. Get people bought into the reasons for their importance and their commitment to do what it takes to meet them.
Financial Management - To learn more about this author, visit Bill Warner's Website.
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David AchesonDavid Acheson is the founder of DCJA Consultancy. DCJA Consultancy is a management consultancy business specialising in B2B sales consultancy. They offer bespoke and packaged sales consultancy including Sales Optimisation Review, Interim Sales Management, Sales & Marketing Review, 1:1 Sales & Management Staff Analysis, Management Training, Solution Sales Training, Creation of New Pay Plan, KPI's, run Customer Feedback Campaigns, assist with Recruitment, Coaching, Appraisals and set up Strategic Marketing Campaigns. David spent his early career in accountancy and then moved into sales in 1982, working in Office Equipment, IT, Advertising, Training, Outsourcing and Consultancy. He has held many Senior Positions in SMBs and Global Organisations including Head of Sales Operations & Head of Business Development. His knowledge, skills and great experience of the Sales Industry has led to David making keynote speeches and running educational sessions to key businesses through organisations including The Chamber of Commerce and Business Link. - Visit David Acheson's Website |
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Dave KurlanDave Kurlan is the founder and CEO of Objective Management Group, Inc., the industry leader in sales assessments and sales force evaluations, and the CEO of David Kurlan & Associates, Inc., a consulting firm specializing in sales force development. Dave has been a top rated speaker at Inc. Magazine's Conference on Growing the Company, the Sales & Marketing Management Conference and the Gazelles Sales & Marketing Summit. He has been featured on radio and TV, including World Business Review with General Norman Schwarzkopf, in Inc. Magazine, Selling Power Magazine, Sales & Marketing Management Magazine and Incentive Magazine. He is the author of Mindless Selling and Baseline Selling – How to Become a Sales Superstar by Using What You Already Know about the Game of Baseball. He created and wrote STAR, a proprietary recruiting process for hiring great salespeople, and he writes Understanding the Sales Force, a popular business Blog and is a contributing author to The Death of 20th Century Selling and 101 Great Ways to Improve Your Life, Volume 2. - Visit Dave Kurlan's Website |
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Cheryl MatthynssensCheryl is a life skills coach, licensed Chemical Dependency Counselor and a 20 year entrepreneur. Cheryl's dedication to achieving a life of balance led to her expanding her teaching from the simple managing of life's daily challenges to adding financial well being as well. A direct marketer with DrinkACT, she is gaining ground in the online community with her concepts of making sure business owners, entreprenuers and employees have well rounded life styles. She opened up a small affiliate site - The Balance Guide- to help others find resources for mental and emotional well being. Visit Cheryl's blog to see more of the diversity beyond business she has began offering online at www.thebalanceguide.blogspot.com - Visit Cheryl Matthynssens's Website |
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Linda RichardsonLinda Richardson is the Founder and Executive Chairwoman of Richardson, a global sales training and performance improvement company. As a recognized leader in the industry, she has won the coveted Stevie Award for Lifetime Achievement in Sales Excellence and she was identified by Training Industry, Inc. as one of the “Top 20 Most Influential Training Professionals.” Ms. Richardson is credited with the movement to Consultative Selling and is the author of ten books on selling and sales management, including Sales Coaching — Making the Great Leap from Sales Manager to Sales Coach, and Stop Telling, Start Selling. She teaches sales and management at the Wharton Graduate School of the University of Pennsylvania and the Wharton Executive Development Center. Linda is a frequent speaker at industry and client conferences, has been published extensively in industry and training journals, and has been featured in numerous publications, including The Wall Street Journal, Forbes, Nation’s Business, Selling Power, Success, and The Conference Board Magazine. Learn more about Richardson's sales training and performance improvement solutions at http://www.richardson.com web - Visit Linda Richardson's Website |
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Stephanie RobeyStephanie Robey is President and CoFounder of Pivot Positive, LLC - an Internet marketing business focused on helping people start work at home ventures. Previously, she was employed at The Search Agency with over 20 years experience in graphic design and 10 years experience in online marketing. She was responsible for launching the Conversion Path Optimization (CPO) unit where she and her team have conducted hundreds of optimization tests for online companies across multiple verticals. She is a successful entrepreneur having started and sold 2 companies and remains on the board of directors of the third, PhotoSpin.com Stephanie began her career in the direct marketing realm creating and producing direct mail for many of the major cable television companies and directly attributes her understanding of Internet marketing to those early offline experiences. Stephanie is a graduate of San Diego State University with a BFA in Graphic Arts and also holds an Executive MBA from the Graziadio School of Business and Management at Pepperdine University. Read Steph's Blog Meet Steph and Dave Sign up for our Free 7-Day BootCamp: Self Employed & Rich - Visit Stephanie Robey's Website |
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