10 Principles for your Financial mindset

Your Financial Mindset is a key part of your Performance Management System

Far too many owners of Small Businesses are out of touch with their financials, but improving net profits sits at the heart of Financial Performance. You need to see your financial mindset of your business as being a critical and primary Performance Management System.

Measurement is one of the cornerstones of any Performance Management System. Improving performance means an improvement from where you are [point A] to where you need to be [point B]. Clearly point A needs to be defined, and you need to be able to track progress towards point B. it’s all about measurement. Seems obvious, but then why do so many Business Owners not do it.

10 Principles to get the right financial mindset

1. Learn the language of finance: Like many specialist areas, financial management is packed with jargon and buzz words, and the key to unlocking some of the mysteries lies in learning the jargon and translating it into layman’s terms that you can then understand and use.
2. Overcome the fear of numbers: A big part of the problem is the fear of numbers, and certainly the fear of accounting. It’s like a mystical area of the business, shrouded in secrets, leading to something that is not understood, and thus avoided. It is often seen as and remains the domain of the book keeper and accountant.
3. Master the basics: Mastery is a critical success factor in business. Just as you have mastery of delivering your core product or service, you will also need to master key areas like Marketing and Finance. Mastering a new skill is not an event, it is an essential journey.
4. If you don’t know – ask: You are in business for the long haul, so if you have any uncertainty about any information in your financials – ask questions. Make learning part of your mission as a Business Owner.
5. Your Financials are your number one tool: The financials are the primary tools of the Business Owner to understand precisely how the business is performing, what the trends are, where the business is heading, and what impact decisions and actions are having on the business.
6. You need to know where you are going: Managing your business without the basic financial tools is like driving your car without a fuel gauge or speedometer. It’s also like driving with a blindfold on. You are in for some unexpected surprises.
7. Financials are not for the Tax Man: The financials are for the Business Owner, they are not for the book keeper, accountant, or tax man. It is the job of the booker keeper / accountant to provide the Business Owner with complete and accurate data to enable the effective running of the business. You need to have a strong hand in the how, when, and where, of receiving your financial information. Although there are many standard formats, there are many useful things that you can change, to make your financials work for you.
8. It’s easier than you think: Most accounting software systems these days are fairly simple to use, and are very intuitive with lots of prompts to guide the correct allocations of transactions. Like most things, when you understand the basics, it becomes easier, and then practice makes perfect. As a Business Owner you can always get someone to assist with the day to day capturing of transactions, and that leaves you free to do the most important thing, understand what the financials are telling you, and then use the information to drive better performance.
9. It’s a cost of doing business: In the same way as you might have to acquire machinery, or pay rent, and utilities, you should see the expense that goes with accounting software and someone to do your bookkeeping as a ‘cost of doing business’. Trying to run and grow a business without the ‘financial tools’ is going to trip you up somewhere along the line, and it will then truly cost you.
10. Make it a daily habit: Capturing transactions and monitoring key indicators is something that you can and should do daily. Leaving financials until the end of the month is often leaving things too late. It becomes history and it’s too late to take any actions that could possibly change anything. Capturing transactions daily will also reduce the overwhelm of ‘month end’.

10 Good reasons why you should maintain and review your financials

Reviewing financial statements is crucial for business owners to gain insights into the financial health and performance of their business. Here are 10 good reasons why you should regularly review your financials.

1. Performance Evaluation: Financial statements provide an objective measure of the company’s performance, helping business owners assess whether the business is meeting its financial goals and targets.
2. Profitability Analysis: Financial statements reveal the company’s revenue, expenses, and profits, allowing business owners to understand the sources of revenue and areas where costs can be optimized.
3. Cash Flow Management: Monitoring the cash flow helps business owners track the movement and timing of cash in and out of the business, ensuring that the company can meet its financial obligations.
4. Decision-Making: Accurate financial data assists business owners in making informed decisions, such as whether to invest in new equipment, expand operations, or adjust pricing strategies.
5. Budgeting and Planning: Financial statements provide a basis for creating budgets and forecasts, helping business owners set realistic financial goals and allocate financial resources effectively.
6. Debt Management: Reviewing financials allows business owners to monitor debt levels, interest payments, and repayment schedules, aiding in the management of debt and the development of a sustainable financial strategy.
7. Identifying Trends: Regularly analysing financial statements helps business owners identify trends in revenue, expenses, and other financial metrics, enabling them to respond proactively to changes in the business environment.
8. Performance Benchmarks: Comparing historical financial performance against targets allows business owners to gauge how well their company is doing relative to goals that have been set.
9. Investor Relations: For businesses seeking finance, loans, investments or partnerships, well-maintained and accurate financial statements inspire confidence and provide transparency into the company’s financial health.
10. Compliance and Reporting: Accurate financial reporting is essential for compliance with tax regulations, legal requirements, and industry standards. Regular financial reviews will help ensure that the business stays compliant, avoids legal, and avoidable penalty issues.

In summary, reviewing financials is a critical practice that empowers business owners to make informed decisions, manage resources effectively, assess performance, and plan for the future success of their company.

At 40 Megahertz Consulting we will be able to assist you to determine which approach would be best for you, and then assist you with a service that matches your requirements. Click here to chat to us today!