One of the things that gets a business into trouble is straying from simple business principles. At the heart of every business are three basic concepts: 1) market driven trade, 2) profitability, 3) cash management.
1. A market driven business always adjusts to what customers need and it knows how to meet their needs. It also recognizes that the market is dynamic and it is possible that customers don't recognize they have a need. This knowledge inspires innovation.
2. To survive, a business must also generate more revenue than expense. Profits are the source of debt repayment, reinvestment, and distribution to owners. An important tool for assuring profitability is break-even analysis.
3. Profits are not the same as cash. A profitable business can fail if cash is not managed well. This is due to the timing of cash in and out of the business. A strong business manages its cash conversion cycle to assure cash is available when needed. The tool to use to manage cash is a cash budget.
Remember to use your informal management team to help you with this concepts, this includes your CPA, industry mentors, SCORE, and the SBDC.
www.wsbdc.org
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