By Kevin Scanlan
Certified SCORE Mentor
In my October column I wrote about the SCORE Virtual Conference on Start Up Success that was planned for November. I hope area entrepreneurs had an opportunity to participate. I did and found several of the presentations very helpful. One in particular was on Financial Dashboards, tool that helps businesses manage their financials. This topic comes up regularly in my mentoring.
Here’s some highlights from that virtual conference session:
Fifty percent of small business fail within the first five years. A contributing factor to failure is not keeping an eye on the financials. You don’t need to be an accountant to understand the basics of business accounts.
Three questions form the basis of reviewing your financial performance — these are the financial benchmarks that make up a traditional Financial Dashboard. 1. Are you making profit? 2. Do you have enough cash to run the business? 3. Is the business building wealth or destroying it?
These questions can be answered by looking at three key financial gauges of your business: Net income (profit), cash flow statement and balance sheet (net worth). They are summed up in these equations:
Net income: Revenues – the cost of goods sold = gross margin (typical target 30%+). Gross margin: Fixed costs – variable costs – taxes = net income.
Cash flow: Beginning cash + cash added – cash paid out = ending cash balance. (Revenue and cash are not the same).
Net worth: Assets – liabilities = owner’s equity.
(Kevin Scanlan is available to discuss how SCORE might help you start or grow your business. Meetings are held by appointment at the Beverly Area Planning Association office, 1987 W. 111th St. You can reach him at email@example.com.)