Financial Management Planning

Studies overwhelmingly identify bad management as the leading cause of

business failure. Bad management translates to poor planning by management.

All too often, the owner is so caught up in the day-to-day tasks of getting

the product out the door and struggling to collect receivables to meet the

payroll that he or she does not plan. There never seems to be time to

prepare Pro Formas or Budgets. Often new managers understand their products

but not the financial statements or the bookkeeping records, which they

feel are for the benefit of the IRS or the bank. Such overburdened

owner/managers can scarcely identify what will affect their businesses next

week, let alone over the coming months and years. But, you may ask, “What

should I do? How can I, as a small business owner/manager, avoid getting

bogged down? How can I ensure success?”

Success may be ensured only by focusing on all factors affecting a

business’s performance. Focusing on planning is essential to survival.

Short-term planning is generally concerned with profit planning or

budgeting. Long-term planning is generally strategic, setting goals for

sales growth and profitability over a minimum of three to five years.

The tools for short- and long-term plans have been explained in the

previous chapters: Pro Forma Income Statements, Cash Flow Statements or

Budgets, Ratio Analysis, and pricing considerations. The business’s

short-term plan should be prepared on a monthly basis for a year into the

future, employing the Pro Forma Income Statement and the Cash Flow Budget.

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