By Eduardo Carajal, special contributor

You could be bankrupt right now, and not even know it.

Many businesses find out whether they’re failing financially 6 months after the fact.

They operate for 6 months without taking any corrective action, either through ignorance or because of fear of shutting down an operation that has become their daily routine, a way to keep busy and escape idleness.

Whatever the reasons for ignoring this unfortunate situation, the more it is ignored, the larger the problem becomes, like a growing snowball rolling down a slope.

There are several “blinders” that keep us from seeing the real situation. Keeping financial records for tax purposes only, incorrect use of credit, and excessive leverage are some of these blinders.

Understanding your business’s finances is critical.  However, if you don’t make decisions about your business based on your financial statements, it’s time to implement internal practices so you can visualize “red alerts” on certain indicators, such as low cash-flow, lagging sales, or any number of important indicators.

To achieve this you should get into the habit of annual planning to set objectives, measure key indicators, such as expected sales and expenses, and compare the projected numbers with actual numbers on a monthly or even bi-monthly basis.  This will allow you to make corrective decisions on items such as: how many prospects should we be contacting? What does my competition offer that’s better positioned than my offering? What should I do with my credit, pay off additional debt, or invest in capital goods?

If you don’t continually plan and measure reality vs. objectives, you’re most likely doing busy work to keep from being idle. What’s funny is that, in Spanish, the term for business is “negocio”, which derives from the Latin “nec” and “otium.” In other words, that which is not idleness.

Originally published at: http://axeleratum.com/blogs/60-eduardo-carbajal-mercadotecnia-financiera/695-negocio-mi-empresa-ies-negocio

Eduardo Carbajal is a Business Development manager at Visionaria. He has developed financial models, and is a CRM planning and implementation professional. He has focused on accelerating business growth for Mexican and Latin American SMB companies, especially in the areas of Information Technology.

Additional Reading

How Strong Are Your Business Finances? -  by Anita Campbell at Small Business Trends

Business Bankruptcies Revisited – by John Tozzi at Business Week Small Business

No related posts.

One Response to “Understanding Business Finances: Are You Running A Business Or A Hobby?”