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Financial Management Planning
By KimBeckersServices | October 1, 2008
Studies overwhelmingly identify bad management as the leading cause of
business failure. Bad management translates to poor planning by management.
All too often, the owner is so caught up in the day-to-day tasks of getting
the product out the door and struggling to collect receivables to meet the
payroll that he or she does not plan. There never seems to be time to
prepare Pro Formas or Budgets. Often new managers understand their products
but not the financial statements or the bookkeeping records, which they
feel are for the benefit of the IRS or the bank. Such overburdened
owner/managers can scarcely identify what will affect their businesses next
week, let alone over the coming months and years. But, you may ask, “What
should I do? How can I, as a small business owner/manager, avoid getting
bogged down? How can I ensure success?”
Success may be ensured only by focusing on all factors affecting a
business’s performance. Focusing on planning is essential to survival.
Short-term planning is generally concerned with profit planning or
budgeting. Long-term planning is generally strategic, setting goals for
sales growth and profitability over a minimum of three to five years.
The tools for short- and long-term plans have been explained in the
previous chapters: Pro Forma Income Statements, Cash Flow Statements or
Budgets, Ratio Analysis, and pricing considerations. The business’s
short-term plan should be prepared on a monthly basis for a year into the
future, employing the Pro Forma Income Statement and the Cash Flow Budget.
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