You are the CEO of your business and the ultimate responsibility for success lies with the CEO. If you’re a small business owner, that’s you. And the most critical CEO tasks that result in success or failure lie in the knowledge and practice of financial management fundamentals.
Over the years, small business owners fail to separate personal expenses from that of the business and statistics show that over half of small businesses fail within the first four years due to improper financial management. This mortality rate could be significantly reduced if, before a business opened, the founder/CEO was required to pass a course that teaches business financial fundamentals and how to operate a business with them.
Unfortunately, most founders do not have the opportunity or time to take a course in financial management before starting a business. However, to be an effective CEO, you need to get a grip on the financial fundamentals of your business. How do you measure up to the advice below?
- CEOs shouldn’t do their own accounting but hire one. Successful ones learn how to manage with regular (at least quarterly) financial statements (balance sheet and profit-and-loss) that an internal and/or external accountant produced.
- Successful CEOs know what their gross profit margin needs to be and what it is.
- Smart CEOs track monthly sales-to-expense ratios in order to know when to adjust spending.
- Savvy CEOs monitor inventory levels against projected sales, receivables and cash.
- Real CEOs know how to calculate Accounts Receivable days and Accounts Payable days, understand the relationship between the two, and the impact of that relationship on cash to create a stable flow.
- Disciplined CEOs develop a capitalization strategy that blends retained earnings with short and long-term capital sources, like bank debt.
- Capable CEOs identify the critical financial indicators and ratios that are revealed on the balance sheet and its relationship with the profit-and-loss statement.
- Surviving CEOs believe and prepare for the cruel irony of how sales growth becomes dangerous when not properly funded, indeed, that you can succeed yourself out of business.
- When a business isn’t profitable, good CEOs identify the top impediments to profitability and deal with them quickly, decisively, and without emotion.
- Successful CEOs delegate many things well, but stay close to the company’s cash picture from tomorrow to the next 12 months.
- Finally, arguably the most important financial management – CEO discipline. Separate the business ex
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