Finance

Many entrepreneurs believe that one has to be a CPA to concern themselves with the issues of finance. Nothing can be further from the truth. As an entrepreneur you need to understand some of the fundamentals so that you can communicate intelligently with your banker or other financial advisor. Questions like how do you plan to finance your accounts receivable or how much free cash flow will you have at a given level of sales will have to be answered if your business plan is to succeed.

Depending upon the organization's structure, there can be as may as three different perspectives from which the company's financial's are viewed. In the case of proprietorships, partnerships, closely held/managed corporations and LLC's management and owner perspectives can be one in the same. However, when management is hired by owners/investors they often view the firm's progress differently. Lenders always have a different perspective on what is a "bankable" company because they want to be sure they get what is owed them. To bankers, anticipatory profits and performance are less important than historical profits and performance. The financial ratio menu will allow you to choose the ratio that from each group' s perspective is important. You should always evaluate the firm's performance based on which group you are trying to communicate the firm's performance

The important issues are quite simple. You must always have enough cash (asset) on hand to pay your current bills (liabilities). You must always choose the least cost method of obtaining the cash to pay those bills and the ones that will incur (investment) so that your business will grow.

Obviously the discipline of finance is not quite that simple. However if you keep those to concepts in mind, you will be better able to understand more complex financial strategies as you execute your business plans