1. CREATE A BUDGET
You are what you measure. Prepare a budget that has the same level of detail as your profit-and-loss statement.
2. REVIEW MONTHLY
Establish a set date each month to review financial results.
3. DEVELOP RATIOS
Every business has numeric ratios that are the keys to profitability. Determine the most important ratios for your business, track them monthly and include them in your monthly review.
4. DON’T CHANGE THE BUDGET
There’s nothing more likely to confuse management than the question: Which budget are we shooting for? Once the annual budget is set, don’t change it. Instead, prepare forecasts several times a year to see if you’ll meet it.
5. SEEK OUTSIDE ADVICE
An outside board of directors or advisers is invaluable to review your finances and can bring fresh perspective to your business.
6. MANAGE THE BALANCE SHEET
Always know your cash balance, review accounts receivable for slow payers and write-offs, watch your inventory levels and pay vendors as quickly as your customers pay you.
7. CREATE CHECKS AND BALANCES
Take simple steps to protect the business against fraud or human error. For starters, review bank statements, personally sign all checks, review all payroll changes and split finance functions among your staff.
8. TIE COMPENSATION TO GOALS
Whether it’s profit sharing, commissions, bonuses or stock, compensation plans should be simple to measure and directed toward revenue or profit goals.
9. CASH IS KING
Cash is the oil that makes your business engine run. Let it run low and you’ll seize up. Know how much cash is coming in and going out and whether you have enough to weather slow times.
10. WATCH THE UNKNOWNS
To paraphrase Donald Rumsfeld, there are unknown unknowns that can hurt you. To protect against them, obtain liability and other insurance, create contingency plans for revenue shortfalls and back up your data.
Bob Ainsworth is chief financial officer of New England Business Media, the parent company of the Worcester Business Journal.Â
