How do we achieve corporate financial success? Easy - build on the fundamentals of personal financial discipline!
I can hear the cries now. “Are you nuts? Business is much more complicated than personal finances. How can you possibly equate them?”
Well, the answer is, “Yes, it is… but, then again… No, it’s not!”
Primarily, business is complicated by the legal constraints within which they are required to operate, (such as taxes, IR, HR, WHS, consumer or environmental protection), and the size of the enterprise. The larger the endeavour, the bigger the numbers are, and the higher the transactional throughput will be. More people will be required to complete and deliver the products or services that go to the customers.
The personnel requirement creates an additional load of complexity for management and communication through the chain of command as does the aggregation of capital to launch the business in the first place. At the other end, if you are a sole proprietor, then you need to separate your business income and expenditure from your personal.
Apart from those constraints, the fundamentals of financial success are exactly the same whether you are a nation, a corporation, or a person.
Spend less than you earn!
Save and invest the surplus!
You need to know what you are selling to whom, and how many at what price.
Having established what you expect for earnings or revenue, then you need to plan to “live” on less than that amount. You need to know what you are buying from whom, and how many at what price.
By comparing your expected earnings with your expected spend you can determine if you can operate with a surplus or deficit. If the latter, then you need to revisit the plan to refine your expectations for earnings and spending to close the gap.
Whether we are talking about business or personal finances, the key to success in both situations is to manage the cash flow. Make sure that what comes in is more than what has to go out. It is the basis for all business success and is just as important in the success of all families. Money is just a tool for keeping score. It shouldn’t be worshipped, but it shouldn’t be ignored.
With such a strong correlation between managing personal and business financials, I can see tremendous gains to a business by improving the personal financial management skills of their workforce. The disciplines and methodologies are directly transferable. They add value to each and every employee, who in turn delivers much better financial disciplines back to the business.