Going For the Gold? Then Follow This Rule
Some people think the Golden Rule is, "Do unto others as you would have them do unto you." This may be the rule of life, but in business, the Golden Rule is, "Those who have the gold get to rule."
What does this mean to small businesses? In short, those companies which do financial planning, establish their lines of credit and understand their cash flow needs will have the leverage and resources to increase their market share, grow and get the gold.
Many entrepreneurial companies just want to sell, do and create activity. Financial planning is sometimes the last thing on their minds, but those companies that succeed must observe the "Golden Rule of Business."
The starting point to achieve this Midas touch is a financial plan for your company. The plan does not need to be for a year, but the shortest time frame should be at least the forthcoming quarter. The financial plan incorporates all of the company strategies expected to be accomplished within the time period.
Many companies do not forecast their equipment investment, the cost of new hires or their necessary support costs and are therefore surprised when cash "goes south" or payables start to stretch out due to lack of cash. The financial plan should have these and other strategies as part of their assumptions.
The actual starting point for the financial plan is a projection of revenues for the time period. Based upon the revenue projection, the company will have a basis for its hiring, capital investment, inventory accumulation and growth in accounts receivable. The strategy of sales achievement will also dictate the amount of marketing costs needed.
The object of the financial plans is to create a cash flow projection, profit and loss statement and the company objectives for the period. Those companies and individuals who run their business this way normally achieve better results. The financial plan and its objectives should not be wishful thoughts, but specific, measurable, achievable, realistic and timely.
If your company does not have the ability to do all of the financial plan, you should use outside accounting services to assist in putting the plan together. But, the company should have the ability and the knowledge of its customers to do the sales projections. The sales projections should be as specific as possible. Depending on the business, this may be by customer, product line, distribution channels, etc. The key to the sales projection is to identify any major changes in sales composition that will impact the gross profit and gross profit dollars contribution to the company.
To get the gold, you need a map. The financial plan and objectives are the directions on the map. Having the Golden Rule will give you better leverage with vendors and customers and most importantly, give you a sense of control over your destiny and business.