A CFO’s 5 Rules For Business Success
By: Eric Anderson, CFO, Adatasol
Your business has to be financially savvy. Without a financial plan, your business will run on historical experience, or crisis management most of the time. Your employees need common goals in order to work together effectively. Working in silos can create confusion and inefficiency. When your employees are not working together as a team, that can also lead to excessive costs from fixing easily avoidable mistakes, and as a result, a reduction of profits.
Not having a financial plan also limits growth. As a business owner you need to always be thinking ahead. If you make your decisions based only on day-to-day situations, you won’t be prepared should a disaster happen. Although you can’t plan for all contingencies, having some kind of plan will reduce risk and give you something concrete to work towards.
When you are working on your business strategy, think of yourself as a baseball manager who knows all the key statistics of every player on the team.
You know their batting average against lefties and righties, at home, or away. You know how they play on a sunny day, and on a cloudy day as well. Just as you would use this to help decide who plays on any given day, you need to have a similar knowledge of your business and how it functions. Doing so will give you a good competitive advantage.
5 Tips to Good Financial Planning
Of course, in your business it won’t be batting averages you keep track of, but finances. Here are 5 tips that will help take your business to the next level.
1. Update Your Business plan yearly
Business plans aren’t just for start-ups. To stay competitive, you need to reform your strategy and adjust your financial planning at least once a year. Go over your finances, take a close look at your cash flow, and determine the best way to allocate your resources for the coming year. Staying up to date will help keep your business flexible even if things aren’t going the way you thought they would a year ago.
2. Keep track of your financial performance
Financial performance is more than just profit and loss. It’s helpful to know what your break-even point is, to be aware of your overhead and how much you need to charge in order to absorb those costs, and what your labor burden rate is. Finding these things out can help you get ahead of your competition, and assist you in making sound business decisions.
You should track your finances and check for variations frequently—at least once a month in order to stay on top of changes that will determine the course of your business.
3. Use Smart Pricing and Job Costing
In some situations it doesn’t make sense for your customers to pay a set price. If you own a hotel and your average fee is $100 a night, your price both could and should go up if there is a big convention in town. Adjusting the price as needed for the individual job or time frame can help improve your profits and take advantage of current events.
4. Keep Track of your Competition
Your competition is trying just as hard to get ahead as you are. Paying attention to them can help you get the information you need in order to stay successful. If they make a big change, pay close attention to it and ask yourself why. You may be able to use their actions to give you a leg up as well.
5. Keep your finger on the pulse of the business
A Weekly Metrics Report can be helpful in keeping tabs on your business. It’s important to spot any problems before they become big ones, and to take advantage of shifts in the market that are in your favor. By reviewing your business weekly, you can keep tabs on your business and make your move when the market is right.
The success of your business is determined in part by how you handle its finances. Take good care of your finances, and your business will have every opportunity to grow and develop.