Make or Break: 10 Keys to Financial Savviness
We'll cut to the chase. Very few companies make it to $1mm in revenue, with far less ever reaching $10mm. What separates those companies that have arrived from the many others? Quite simply, they know their numbers.
Financial stability is the backbone of any successful business. Here are 10 essential principles every entrepreneur should follow to build a financially savvy business.
1. Cash is King
More businesses fail due to cash flow issues than a lack of profit. Understanding where your cash is coming from and where it’s going is critical. More importantly, track the timing of your inflows and outflows to avoid liquidity crises.
2. Profit Does Not Equal Cash
While a business can be profitable on paper, it may still run out of cash. Financially savvy businesses prioritize cash flow management over just profit margins, ensuring they have the liquidity to cover operational expenses.
3. Have a Financial Game Plan
A 12-month financial game plan—commonly known as a budget—is essential for managing cash flow. This plan serves as a roadmap, allowing you to anticipate challenges and allocate resources effectively.
4. Be Able to Track and Pivot
Regularly tracking your financial performance against your budget is crucial. If financial realities shift, be prepared to adjust your strategies through consistent forecasting and data analysis.
5. Build a Strong Financial System
Accurate, timely, and reliable data is the foundation of sound decision-making. Establish financial processes and systems that provide clear insights, enabling effective forecasting and strategic planning.
6. Create a Long-Term Financial Plan
A successful business has a long-term financial vision. Develop a 36- to 60-month financial plan that aligns quantitative financial goals with your broader strategic vision.
7. Establish Key Metrics
Define financial and operational metrics to track performance effectively. Financially savvy businesses consistently evaluate their progress and adjust operations based on key performance indicators (KPIs).
8. Understand Gross Margins
Knowing which products and services generate the highest margins is critical. Evaluate each revenue stream and ensure that your pricing and cost structure align with your target profitability.
9. Forecast Your Cash Position
Look ahead 90 to 180 days to anticipate future cash needs. This foresight allows you to make informed strategic decisions, such as when to invest, cut costs, or secure additional funding.
10. Keep a Forward Focus
Even if you are not planning to sell or exit your business soon, preparing today for a future transaction sets the stage for long-term success. Establish financial structures and best practices that will enhance the value of your business in the future.
By following these 10 principles, entrepreneurs can build a financially resilient business that not only survives but thrives. Financial savvy isn’t about reacting to problems—it’s about proactively managing your resources and planning for the future.
Ready to Strengthen Your Financial Foundation?
If this list helped you identify gaps in your financial strategy, you don’t have to navigate them alone. Our virtual accounting and CFO support services can help you build a strong financial foundation, improve cash flow, and set your business up for long-term success. Contact us today to get the financial clarity and strategy your business needs!
