5 things no-one will teach you about finance management
Is it art, or is it science? Since mainstream finance management is about a cool head and a collection of numbers, it must be a science, surely? But five things no-one will ever teach you about finance management are about your reactions to what the calculations are trying to tell you, and that makes the whole thing a bit of an art…
For a start, it’s worth remembering that numbers can be manipulated to say whatever you want them to say. And that’s where we begin in our look at five things no-one will ever teach you about finance management (until now).
- Put personal prejudice aside. We’re reminded of the executive who didn’t like one particular division of his business, for reasons best known to himself, and was determined to close it down. But this division was the source of 12% of the organisation’s net revenue. Rather than take a step backwards and look at the group’s position as a whole, he insisted that figures were manipulated to make the division appear unprofitable. Why would he do that? It was never made clear, but common sense and his colleagues prevailed; the division stayed.
- Just because there’s money in the company bank account now doesn’t mean you can rush out and buy that new Mercedes at once. Plan ahead and look at the potential demand for cash in the weeks and months ahead. Are there any supplier price increases on the horizon? Are there changes afoot amongst your major customers? You may need that cash to tide you over a lean period looming up on you; having a cash-rich company will tide you over a temporary lean time.
- Coping with loss. There are likely to be times when your business doesn’t perform as well as you’d like to it. You may even make a loss in a particular month. Don’t be downhearted. Look at the bigger picture. Try to understand why the loss was made; perhaps it was a late payment by a major client, or a tax bill that you were expecting anyway. Set the loss in context, and remember that a loss at any given time is no more than a page in a story; a snapshot of circumstances at a given moment.
- Being realistic. Plan for the worst. Don’t become a doom and gloom merchant, but if your plans are about how you’ll cope if catastrophe strikes, then not only will you avoid all manner of nasty surprises, but you are more likely to deliver yourself a pleasant one when your efforts result in profitability.
- Pursuing accuracy. Know as much as you can about your financial position at any given moment, because incomplete data leads to ill-informed decisions. Rely on technology like Solo Expenses for your small business expense tracking, which helps to make costs instantly and accurately visible.