I want to talk to you about something that’s so essential in business, yet no one likes to talk about it. I’m referring to financial control.
Now, before you roll your eyes and click off the page, please hear me out.
You’ve heard the statistic before. “More than 80% of small businesses fail.” But you may not be aware of the reasons why they fail. The top reasons why small businesses fail all involve the financial side – poor cash flow, insufficient capital, lack of planning, lack of financial experience, poor credit arrangements.
Part of the problem is small business owners are entrepreneurial by nature, willing to take risks to start a business they love. They don’t have the time, experience or desire to become financial experts. So, they tend to ignore the financial side or delegate it to others.
But a business needs financial control and big-picture strategy to succeed. The challenge becomes how can a busy business owner achieve financial control in a simple, practical way.
First, let’s look at some misconceptions business owners have that puts them at a disadvantage and has a negative effect on their business.
Accounting vs Finance
Many business owners believe their accountants or bookkeepers handle the financial matters in their business. They don’t need to focus on the financial side and can leave it to others.
This belief comes from a myth – the myth that accounting and finance are the same. They are not!
Let’s look at some of the differences:
- Accounting is backwards looking. Finance is forward looking.
- Accounting records past financial data. Finance uses that financial data.
- Accounting is analytical and detailed-oriented. Finance is more insightful.
- Accounting can be outsourced to a third party. Finance is used by the decision-maker.
- Accounting is the beginning. Finance is the next level.
Accounting and finance have different functions and different emphasis. Accounting is about methodical record keeping, compliance with accounting principles, and preparing tax returns.
Finance, on the other hand, is about influencing the future performance of the business. Only one person can do that. The business owner, not an accountant or a bookkeeper.
It’s All About Revenue
Many business owners believe that a successful business is all about revenue, and more revenue is the cure-all for everything. This is false.
Generating revenue is always important in business, especially for a start-up. But revenue by itself is not enough. In order to succeed, there must be financial control. Here’s why.
Revenue is not cash. A business needs cash every month to survive. Revenue and cash flow will fluctuate each month. And the difference between the time of a sale and the receipt of cash can be significant. Financial control helps you manage cash flow so you have sufficient cash every month.
Revenue is not profit. Greater revenue doesn’t guarantee greater profit. Increasing revenue can sometimes cause a business to be less profitable if expenses also rise or are disproportionate. Financial control helps you manage expenses to stay profitable as the business grows.
Revenue is not the decisive factor. Business decisions and strategic planning based on revenue numbers alone will be flawed. Revenue by itself is not indicative of the entire picture. Financial control helps you make sound business decisions and think more strategically.
Yes, revenue is important, but by itself it’s not enough. Financial control is essential to build that business you envision.
Most business owners I’ve spoken to don’t have business plans, They believe they only need them if they’re seeking money from an investor or a bank. This is not true. Business plans are prepared for many reasons, some for internal purposes and some for external purposes.
Preparing a business plan and setting financial goals gives you clarity, focus and a big picture perspective. Monitoring financial results keeps you current so you’re always prepared for unforeseen events or unexpected setbacks. This gives you a big advantage and keeps you on top of your game.
Financial Control is Key
Financial control helps you:
- have positive cash flow
- make better business decisions
- think more strategically
- grow revenue faster
- get optimal financing
- be prepared for unforeseen events ad setbacks, and
- always stay on top of your game.
Most importantly, financial control lets you sleep at night.
Financial control is not as difficult to achieve as you may think. The problem is no one talks about it. No one cuts through the complexities of financial management for a small business owner and shows them how to incorporate a streamlined system that will work for their business.
Financial control is about economic empowerment. And economic power equals equality. That’s why I’m so motivated to introduce finance and financial practices to women business owners. I’m working on my next article that will go into greater detail on how a small business owner can achieve financial control.
Financial control is powerful. It will change the future of your business. I guarantee it. So, please embrace it!