Small businesses need to ask these three questions to optimize financial flow.
If questions are truly answers, then small-business owners must ask themselves three simple questions at the end of every month:
- How did my business perform this month?
- What is my year-to-date financial performance?
- What can I do to improve financial results and, ultimately, maximize my cash flow?
These three questions are essential to financial flow, and the answers rest in the monthly financial closing process.
Successful companies, both public and private, have policies, procedures and workflow to determine financial results within days of the months end. With this information, many companies can answer the first two questions. However, the true value of financial flow lies in obtaining the right type of financial information and reports to help answer the third question.
What is Financial Flow?
According to the FlowFirst management model, financial flow is a companys ability to process, record and report accounting and financial transactions on a timely basis to produce financial statements and to facilitate better decision making.
In the FlowFirst management model, each flow is a combination of the processes, people and technologies that are needed to maximize cash flow. Financial flow is central to this model, in that it requires accounting and finance groups to collect all transactional data and then provide financial performance reporting to the entire organization. As such, financial flow directs accounting processes and controls, budgeting, forecasting and planning, and operational analysis.
Integrating Financial Flow
The FlowFirst management model is reliant upon sound business processes and the integration of financial flow with sales and operational flow to maximize cash flow.
Financial statements and other financial information found in monthly closing reports are invaluable in facilitating this integration.
On their own, financial statements provide:
- Monthly and year-to-date profitability snapshots
- Balance sheet and cash flow statements
- Comparison to prior periods and to budgets
Financial statements alone do not tell you all key sales and operational information:
- Customer mix or product mix
- Client retention or attrition on a monthly or yearly basis
- Profitability by product line
To bridge this information gap, successful companies also generate management reports.
When combined with financial statements, management reports will assist in determining how to improve overall financial results and will help provide an answer to the cash flow question. Management reports, in particular, contain extensive information that is directly related to sales, operational and financial flow.
Some examples of the information found in management reports include:
- Monthly burn rate schedules
- Profitability reports by product line, division or customer
- Financial ratio measurements
- Financial and cash flow projections
- KPIs (key performance indicators)
Next page- Key sales operations questions and Next steps to financial success