Thursday, July 28, 2011

The Main Problem Faced By Small Businesses In Managing Their Finances

Here are a few .....

Lack of skill. I've friends who are continually training entrepreneurs on the difference between gross profit and net profit, or between direct costs and overhead, and why these matter so much.

Inadequate support. Their bookkeepers -- and often their CPAs -- are focused on tax accounting, not management accounting. They need someone with a CFO mentality.

Poor systems. Inflexible software, hard to get the reports they need.

Intimidated by numbers. They look at a P&L spreadsheet and their eyes glaze over.

They don't know how to ask for reports that give them the handful of numbers they need to keep track of performance daily.

Or they are good at it, and do it themselves. This is a poor use of their time, and they don't get an objective outside perspective on their numbers.

They run their business to minimize profit so they don't have to pay taxes, then wonder why they can't get a bank loan.

They try to finance growth out of cash flow rather than obtaining capital from a bank or investor.

They fear debt and are reluctant to invest in their own business growth.

And finally they run the business to maximize revenue and neglect profit. They need to adopt a revenue AND profit perspective.