The Three Pillars of Financial Management in the Small Enterprise

Entrepreneurs have to pay attention to financial management to grow their companies successfully.  You have to make sure you make profits.  You have to develop confidence in others that you know your company’s finances.  You have to make sure you don’t run out of cash.  And you have to make sure that marketing and other activities are paying off, and that your operations are as efficient as possible.

Here are the three pillars of financial management to help you, the entrepreneur,  succeed:

1. Financial Analysis and Reporting

2. Detailed Cash Planning

3. Marketing  Analytics

If you get each of these right, you will do fine.

Financial Analysis and Reporting

This sounds pretty mundane – and besides, isn’t this what the accounting software is supposed to do?  Your accounting software does a good job of capturing transactions and spitting out reports, but it usually falls short in the analysis.  What you want is to develop a monthly reporting package that you can use internally, and can also share with lenders, investors, and board members.  At a minimum, this should package include these elements:

Brief Narrative of what happened in the latest reporting period

Key Performance Indicators

Income Statement

Balance Sheet

Cash Flow Statement

But not just for the latest month – it is important to show side by side recent time periods so you can see how things are changing at a glance.  Also, the monthly reporting package should show updated projections of where you think things are headed, not just what happened in the past.  Click on the image below to view a sample reporting package with everything except the narrative.

Sample Report Package

Sample Report Package

 

Detailed Cash Planning

Detailed cash planning is not something you need to do every week or even every month.  But when you find yourself operating with less than 20 or 30 days of cash, you need to sharpen you cash survival skills.  And if you are a practioner of “Just In Time Capital”, you need to make Detailed Cash Planning a core competency.

There is a great series of articles on detailed cash planning on the SurvivalWare website.  Here are just a few:

Just in time Capital – a survival technique for small business

How much cash do you have to work with?

10 Tips to Survive a Cash Crisis

Surviving a Cash Crisis using SurvivalWare Cash Planner

 

Marketing  Analytics

“Half the money I spend on advertising is wasted; the trouble is I don’t know which half”

This oft-repeated quote is attributed to John Wannamaker, the famous department store merchant who lived in the 19th and 20th centuries.

In today’s fast paced internet world, we no longer have that luxury.  Marketing analytics means different things to different people.  According to wikipedia, Analytics is the application of computer technology and statistics to solve problems in business and industry.  I am using Marketing Analytics in that context:  the application of computer technology and statistics to solve problems related to marketing.  Specifically,  to help the business owner develop an understanding of what works, what doesn’t, and how things are trending over time.

For web-based businesses, this requires a daily focus, and often data from 5 or 10 different sources.  They key is to gather the statistics in one place so that they can be analyzed and compared.  Also, to include both financial and non-financial measures – for example web visits, leads, unit sales, dollar sales, pay-per-click advertising costs, email open rates, etc. etc.  It is critical to be able to look at 7 day moving averages in addition to the daily numbers so that you don’t get whipsawed by the natural volatility that is the nature of the beast.  It is real nice to be able to aggregate the statistics into weeks and months as well to look at longer trends, or to create you own time periods to correspond with specific marketing campaigns or a website overhaul.  I’d love to hear how business owners are tracking their own marketing stats.  In future articles I’ll show you what we are doing for marketing analytics at Luhring SurvivalWare.

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Understanding Franchise Unit Economics – why is it so hard?

Most people look askance when I tell them that franchisors represent a key market niche for SurvivalWare.  Surely they have everyone on a centralized accounting system and it is just a matter of spitting out the right reports.  But remember that each franchise location is a separate business, with a separate owner, its own accounting system, and its own set of books.  Even if you do publish a common chart of accounts (and most franchisors do!), they morph over time in real world usage.

Why is it so difficult for you, the franchisor, to get a handle on franchisee profitability and cash flow?

…Because trying to get financials from franchisees has been like beating your head against a wall full of sharp razor blades (ouch)! 

…Because you quickly found that once you did get some financials faxed to you that it was a painfully slow and incredibly labor-intensive process (not to mention error-prone) to manually enter the numbers into a spreadsheet so you could see the data and try to understand it. 

…Because you realized you needed a “common format” for the financial information BUT every franchisee has a different chart of accounts, many use a different accounting system, the reports are all in different formats (some are highly summarized and some are very detailed), and someone on your staff has to make sense of that in order to enter the data in your “common format”. 

…Because you had a nagging fear in the back of your mind that the data “translation” process was not consistent or accurate. (The fact that you brought in a temp to do the work didn’t help your sense of concern, right?) 

…Because  you quickly realized there was no way you could gather monthly financials from franchisees because this process was way too time consuming and costly to even consider doing on any kind of regular basis.

I’d love to hear back how franchisors have tackled the problem – whether using SurvivalWare or some other tool. 

Here’s what the CFO of AlphaGraphics has to say about how they solved the problem.

Learn more about Franchise Analytics and SurvivalWare’s Cash Flow Software  by clicking on the links.