Many new business owners don’t always have the best capabilities in terms of financial factors. Even so, it is important for them to understand common pitfalls. As an example, many new business owners rely too much on financial statements. It is true that revenue, expenses, profit and loss are basic financial factors that any business owner should be aware of. However, you should know that actual information in financial statements can be too little and too late. It’s too little based on the fact we don’t obtain information of customer advocacy, loyalty and satisfactions. It’s too late based on the fact that situations represented by the financial statements has happened long time ago.
The financial statement may tell us that we have significant revenue. However, there’s no reason to celebrate if our current sales are declining sharply. Financial statements should be seen as something that happened in the past and it even doesn’t tell us the whole story. There are different details related to financial statements. Financial results could be provided in different categories, such as actual this month and last month. The report should also provide percentage of variance between them and information about year to date. One problem is that if we don’t pay attention to variance between current and last month values.
New businesspeople should see percentage of variance as a trend that happened in the past. They need to see what’s happening currently, based on the information provided by the retail and sales teams. If they react to information shown on the financial statements, that’s already far too late. There are many things that need your attention and they will affect everything. If possible, you need to get daily reports from the sales and retail frontline, so you know more about what’s happening with your company, almost at real time. Even if business owners obtain latest financial information, they may not set goals
Responding to specific financial situation require good business planning and not all business owners are able to do that. They don’t have definite objectives and goals. Many times, these objectives and goals are not well measured. Measurement is an important business activity and you need to be able to respond accordingly. You should look for any kind of ongoing feedback and check whether things are happening correctly. Good sales are indication that you have proper customer loyalty. If your business progress are declining, then there’s a potential problem with customer loyalty.
There should be proper brainstorming in performing financial activities. It is important to know that financial decisions are effective if your measurement is not usable and accurate. So, business owners should check first hand, whether daily reports from the sales and retails teams are correct. This activity can be performed randomly by business owners and make sure that the data has been tested sufficiently. You need to take into account any bigger mistake, such as unintended consequences. By doing this, you should be able to set your business apart from the pack.