5 Financial Modeling Myths
Do you have a financial forecast model in your business that is updated regularly?
Do you wait months after the end of the month to see how you are doing financially? Are you able to review financials each month consistently to prior months? Do you make decisions using your Income Statement and Balance Sheet with actual results and a forecast?
For most small businesses, the answer to all these questions is “No.” There are many reasons for this. Many times it is due to simply not having reliable and consistent accounting. Sometimes it is because the owner does not know how to read the financials, so they just don’t look at it.
As you might guess, I strongly believe in consistent month-end processes to enter and review the accounting, so you gain a good understanding of the trends in your business.
Here are some ideas.
One very applicable reason for doing this is managing your cash. Many organizations are tight on money and need to manage it weekly. If you are entering transactions consistently and reconciling, you can review actual cash flow and forecast it more accurately over the coming weeks. This consistency may help you alleviate an issue coming.
Another reason for proper month-end processes is so you can have useful reports to understand how you are doing and keeping your team aligned. I have heard from multiple wiser executives and owners the value of sharing the finances with everyone on the team. Everyone wants to know the score, and the financials are the ultimate scoreboard for your business.
Finally, if you have proper monthly processes, then it makes any quarterly or year-end activity much more manageable. I believe it saves time because it is much easier to remember and record transactions when information and supporting documents are needed for the last few weeks than having to look months back.
A good financial cycle starts with the receiving of cash into your organizations. We use this cash to pay vendors, employees, and contractors. We should have a good disbursement process to handle payroll, bill payment, and expense reporting. Finally, as mentioned above, you should have a good month-end process, so you have reliable financials to keep score and keep your team aligned.
Do you have a financial forecast model in your business that is updated regularly?
Do you have consistent financials that you can review each month...
Are you in a position today where you desire business success at the next level? Let’s say your...