The three pillars of business success.

3 PillarsWhile we all know this, very few of us give any real thought to it.  Every single business in the world has three very distinct areas (pillars) of responsibility:

  1. Sales and Marketing
  2. Operations
  3. Financial Management.

Almost all business owners are more oriented toward sales and marketing and away from financial management.  They got into business because of their love of their product and that is where they have passion.  Operations is a natural partner of Sales and Marketing which means it is usually (but not always) pretty well taken care of.

The problem is businesses go out of business if they do not have a financial management system in place.  The bigger the company gets, the more important these financial systems are.  That is because the owner no longer has his finger on the pulse of the business.

A financial management system is the methodology and software that an organization uses to oversee and govern its income, expenses, and assets with the objectives of maximizing profits and ensuring sustainability.

The flaw in the business owner’s thinking is he has a bookkeeper, he has a CPA, he is good with numbers – any number of statements that allow him to ignore this third pillar rather than having to make sure it is serving him.

There are thousands of stories to show how important having good financial systems are but let’s make this more personal with a story of my own.  I have a client that has great sales, great sales growth and great gross profit.  To her credit, she has tried to put good financial management systems in place but the people she brought in were not good and failed him.  The consequence is her G&A costs have exceeded her gross profit (by substantial amounts) for the last 4 years.  Today she is in big trouble and the very sad story is that none of this was necessary.  If she had the right person in place, her company would be ready to jump to the next level.  Instead, she’s fighting for her life.

Preparing and presenting financial statements is not sufficient to help a business owner run his or her company.  We need to also look forward – prepare projections and cash flow statements.  When the owner wants to introduce a new product or a new market, including a financial analysis produced by someone trained to do this (generally not the CPA) is mandatory.  How does this new product affect cash flow?  human capacity?  asset capacity?  What is the economic value added to the business by moving forward with the decision?

Financial management brings good information to all major decisions which means better decisions.  And if my client had good financial information, she would not be struggling the way she is today.

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