Unlock Your Business Survival and a Fortune With Financial Accounting

Part One: Shaping the Financial Landscape of Your Business

As an Executive, the first thing I immerse myself in a business is financial reporting. Many leaders may ask, "Why do I need to know these figures? I know the profits, the revenue; why waste time and energy on endless numbers?"

Such a stance is similar to a driver saying, "I know where the accelerator and brake are, I see the cars around, why do I need this dashboard?" Such a driver learns the hard way after their first accident, which, at best, costs time and money and, at worst, risks health or life.

So, what's the essence of financial reporting?

1. It's a tool for tracking vital company indicators.
2. With proper reporting, company management becomes easier and more predictable.
3. It helps prevent cash gaps, theft, and profit loss.
4. The owner gains control over all business processes.

For reporting to become an actual tool and not just an abstract piece of paper, it's critically important to maintain it correctly.

Leaders often confuse numbers - revenue, turnover, net profit, and distributed profit. There's a common illusion among leaders without reporting that they understand the cost of customer acquisition and the real cost of the product.

Such individuals think in terms of how many employees are in the office, who to hire or lay off, and how much traffic they've driven. But they fail to factor in the cost of the designer's work, developers, telephone expenses, CRM maintenance, rent, and so on.

Consequently, they face:

1. Incorrect understanding of critical business parameters
2. Lack of adequate conclusion
3. Complete lack of control over money or ceding all power to the finance director

I've spent 18 years studying this topic, personally managing all expense systems and registries, performing the work that large financial departments do.

I've built financial models as we were constantly intertwined with investment funds, major consulting firms, and management structures.

Based on my experience, I've developed a set of rules to quickly get any business's financial system in order: Identify key blocks. All expenses are broken down into blocks.

There are three key ones:

• Customer Acquisition
• Customer Handling
• Product Manufacturing (or service provision)

Additionally, there are supporting blocks:

• Finance
• Security
• HR
• Management

Each block is further broken down into expense groups. All expenses are strictly recorded according to regulations. Any expense item must be created according to the established format: The name of the item, the group it belongs to, and the block to which the group belongs.

As a result, at the end of the month, you receive a realistic layout:

1. The cost of customer acquisition considering all expenses, not just direct advertising.
2. The cost of handling a customer, considering all expenses, not just the sales department's salary.
3. The cost of product manufacturing, considering all expenses, not just the cost of components and the salaries of the people responsible for the product.

In conclusion, understanding your financial reporting not only provides insight into the numbers but also offers a reliable tool for managing your business processes and making strategic decisions.

Remember, driving your business forward without a clear understanding of the financial dashboard may result in unexpected crashes. By following these guidelines, you will take control of your business and steer it toward success.

Part Two: Detailed Analysis of the Financial Block

One common mistake many business owners make is allowing their finances to run on autopilot. The practice of registering expenses and income is in place, but the finance team is not directly involved in profit generation, thus they stand apart from real money transactions. Yet, a well-structured financial reporting system can not only protect the company from mishaps but also provide clear insight into all key aspects and strategies of the business. It allows for real-time monitoring and facilitates crucial decision-making, propelling the company forward more swiftly and effectively.

The need for establishing financial reporting doesn't depend on the size of the company; issues can arise in a sole proprietorship just as in a huge corporation. Thus, instead of focusing on abstract financial literacy, we will concentrate on a fundamental understanding of this field, scrutinizing the differences between these aspects later in the module. These misconceptions often arise from a belief that one’s current knowledge is adequate or that delving into this area is too complex.

Finance can be divided into:

1. Management Financial Management
2. Accounting

Key Success Factors

1. The implementation of a reporting system to government authorities. Knowledge of legislation allows the company to remain within the law and avoid risks associated with legal violations.
2. The implementation of a payroll reporting system for government authorities. It's crucial to understand what reports are submitted, the principles of employee registration, and the potential risks in hiring, tax filing, and deductions.
3. The implementation of a document collection system in the company (EDO). This aids in maintaining the connection between the accounting department and marketing, sales, and other departments that handle documents.
4. The implementation of an accounting automation system.
5. A robust legal structure of the company has been developed.
6. The implementation of a budgeting system. This is one of the most crucial success factors, as it helps understand the company's expense plan, the purpose of each item, and how to collect information on them. The budgeting system shapes the financial model of a manager and allows them to think through the lens of money.
7. The implementation of a financial reporting collection system. For example, can you affirmatively answer the question, "Are your financial indicators of profit and loss or cash flow updated daily?" How to set up a process that keeps financial reports up-to-date every day. This aids the manager in making key decisions at any given time.
8. The implementation of a financial automation system. The manager should understand what automation systems currently exist and when it's time to move away from Excel-based reporting. The most important aspect is understanding what to automate and when.
9. The implementation of an expenditure accounting approval system. This refers not only to the approval of expenses but also to ideas, projects, plans, contract details, payments, acts, etc. It's an extensive ecosystem. A good manager needs to be open to various approval systems.
10. The implementation of a payroll calculation system. The correct salary calculation system is closely linked to a well-established motivation system. If there's no data on the entire department and all personnel, the employees may suffer. And employees are a crucial part of the team that brings profit to your business.

Finance isn't a straightforward area. But adding a sound financial account to yourself, thinking through numbers is only possible through understanding the fundamental bases and implementing the success factors.

Before you put Finance aside, answer honestly:

• Do you understand the differences between the cash flow report and the profit and loss report?
• Do you know the modern profitability indicators?
• Do you understand the differences between managerial, accounting revenue, sales revenue, and reporting?
• Do you know which expense items need to be closely monitored?
• Can you compile a budget for a project, calculate current and future costs?
• Can you create such reports based on which you can make important decisions in the moment?

All this knowledge helps think strategically. Financial education is a guarantee of successful management.