Even for the most lean, bootstrapped business, it can be expensive to keep your doors open. Expenses rack up pretty fast, and it becomes difficult to spend on anything that is directly related to getting and keeping paying customers. That's why many entrepreneurs and business owners don't allocate adequate resources to the accounting and finance function of their businesses.
I have recently done some research on what makes businesses fail. There are a lot of books, articles, and even academic research on the subject. And there are also lots of blog posts with catchy titles like "Top 5 Reasons Businesses Fail." It's a popular topic, but I have to admit most of the information I've found focuses more on symptoms than on root causes.
Most Popular Blog Posts of 2010
Sports teams compete against each other and they keep track of the score. They know who wins and who loses, and each player on the team has more statistics on their performance than they know what to do with. Individual sports athletes, like golfers and runners, meticulously measure their performance against themselves and others and use their numbers to find ways to improve.
Is running a business any different? Is there a way to know if you win or lose each day? Each week? Each month? Each year? The answer to all of these questions is yes, and I write about how to accomplish this in
[Author's Note: This post is not about the Twilight Series' release of its third movie. I do, however, admit that my wife took me to the first two and will likely take me to the third soon.]
At 4:17am on Saturday, June 26th 2010 I saw the beginning of a lunar eclipse. I was on an early-morning (or more like a middle of the night) hiking trip and we stopped to watch this rare occurrence (this was the first of only two this year). What we initially saw was unimpressive. At first, a dark cloud seemed to cover the upper arc of the moon. The earth's shadow was barely beginning to i
Some of my blog writing time has been directed to fulfilling a request to provide articles for the American Express Open Forum®. The first one is titled "3 Components of Financial Clarity" and it went live on their website yesterday.
Clarity in business has to do with three things - the past, the present, and the future. Where we've been, where we find ourselves today, and where we are going - our final destination. Like a three-legged stool, removing any one of these elements would damage our ability to see the whole picture of our business. When we achieve this clarity, here are the three main benefits we receive:
BENEFIT 1 – MINIMIZE ANXIETY
I have had a lot of conversations recently about staffing the accounting and finance function in the company. As companies grow and shrink, their needs in this area change. We certainly do not want to be over-staffed, and we also want the most cost-effective staff doing as much of the work as possible. For example, we typically do not want our Controller or CFO entering payables - this task can easily be delegated to a much lower cost employee.
I have heard this statement more often than I care to admit: "I cannot predict the future so a budget would be worthless for my business."
An article entitled How to Create a Budget in BusinessWeek prompted me to recollect some of my experiences with helping people who have the above attitude towards budgeting gain a new appreciation for the process and, more importantly, the results the process can generate.
Every sensible financial model projects the results of all three major financial statements - the profit & loss, balance sheet, and statement of cash flow. The balance sheet, not the profit and loss, is what drives the cash flow of the business. If the balance sheet is not correctly modelled, then the cash flow forecast is most likely inaccurate and worthless. Yet the balance sheet is the part of the model that is usually the most neglected and le