What does it take to control a business?

    Business control fits into two interdependent parts:
    - Condition monitoring at various points in time;
    - Monitoring the results for different time periods.

    The state of a business can be defined as the value of a business.
    The results are different. It is customary to distinguish two consecutive business results:
    1. Economic result - determined by profit;
    2. Cash result - is determined by the total cash flow.

    It turns out three main control points from which to start :
    - The state (cost) of the business;
    - Profit;
    - Cash flow.

    In this case, the Profit for the period should always be equal to the change in state from the beginning to the end of this period.

    Where to get this information? Everything is very simple. These are three financial statements:
    - Balance sheet (statement of financial position);
    - Statement of income and expenses (income statement);
    - Cash flow statement.

    The conclusion is very simple: to control a business, you must have three financial statements!

    Most executives and owners are not aware of the significance of these reports, extolling budgeting opportunities, which also limit planning to cash flows only.

    In the literature, business management on past financial statements is compared to driving through a rearview mirror. Then managing a budgeting business can be compared to driving with a drawn map. In these comparisons, one can understand that it is best to look under the feet, i.e. not just achieve reliable financial statements, but their everyday availability.

    Conclusion: in order to control a business, it is necessary to have daily financial reports in the format of a triad: balance sheet, ODR, ODDS.
    Then you can do budgeting, but again, not only in cash flows, but in the form of a budget: budget balance, budget ODR, budget ODDS.

    Also popular now: