Business Finance: The Key to Success
The companies that manage to position themselves among the most successful are those that have been able to maintain healthy finances over time. This is because finances play a determining role in the overall performance of the company, impacting on all areas that keep it afloat.
However, not all entrepreneurs or managers of a company recognize the importance of corporate finance and often consider that these are reduced to a record of accounting. This is a mistake, since finance involves a much more complex process.
In reality, finances guide company management and decision making, and are decisive when facing crisis states.
Business Finance: A Priority
Finance must be understood as a priority tool and therefore it is important that both directors and general managers are able to understand how they work and how they impact all areas of the company.
The financial statement is the basis of all operations of a company because it provides indicators that guide basic decisions for optimal management. Therefore, it is also a factor that intervenes in the growth of the company.
Hundreds of new businesses emerge each year, but only a small percentage will survive for more than five years. Practically what can make the difference between success and business failure is proper planning that helps minimize economic losses and maintain healthy finances.
For this reason, a financial plan should be developed to help improve profitability. Based on this, the fulfillment of short, medium and long term objectives and goals is determined.
For example, first a monthly amount of income must be established and the level of sales necessary to achieve it, then the sources of financing are determined and, finally, the adjustments of business expenses are made to ensure the sustainability of the company.
In this way, a financial plan helps guide and coordinate all areas of the business.
How to prepare the financial plan?
The financial plan is a strategy that should include the following points:
- Define the company’s goals and establish the order in which they should be achieved in the future – these should always be in accordance with the company’s mission and vision.
- Based on the goals, define specific and appropriate objectives for each department or activity of the company, as well as establish deadlines for the fulfillment of each one. These objectives must be realistic, achievable and measurable.
- Make a budget that includes the financial instruments that the company will use to complete the objectives. Financial instruments may include savings accounts, investments, credits and loans.
- Conduct budget management and performance measurement to make necessary adjustments.
Once the plan is in place, a financial analysis should be made, as this will produce the indicators that will guide future decision making for the entrepreneur.
The key to a good financial analysis is to do it in a systematic way, comprising three steps: equilibrium, indicators and growth.
Balance between income and expenses
This is one of the most important data disclosed in the financial statements, since income should always be greater than or equal to expenditures.
They have to do with the financial flows and profitability of the company. Some of the most important are:
- Liquidity indicator. It is crucial to determine whether the company has the capacity to pay its obligations in the short term (payment of salaries, income, services, taxes, among others) without damaging its financial stability.
- Indebtedness indicator. It is normal that some companies have requested bank credits or materials from their suppliers. As long as this debt is not paid off, this indicator will be in red.
- Indicator of profitability in sales. Sales must be sufficient to cover each of the company’s operations.
- Activity indicator. This is divided into two: the first analyzes the time required by the company to make its sales and the second, the time needed to make payment to suppliers.
Once the financial analysis has been carried out, an assessment can be made of the growth of the company’s liquid assets. And from this data, it will be easier to decide how the resources will be used to keep the company expanding, either by launching new products or by increasing sales.
The role of the counter
Finally, it is important to point out that an accountant is the best support to keep the company’s finances healthy, since he or she is qualified to do so and, to a certain extent, financial operations can be quite complex for those who do not have the necessary knowledge.
In this sense, entrepreneurs will require an accountant to cover functions such as the preparation, verification and analysis of financial statements, verification of compliance with tax obligations and audits to detect capital leaks.
Certainly, every entrepreneur must be well informed of the operations and financial movements of your company because, in this way, you can assess the best options for growth according to the needs of your business.