- Hire a competent accounting firm to prepare financial documents, which should be submitted to you at least once per month. They should include an income statement, balance sheet, and cash flow statement.
- Every business must compute and know their breakeven point. This requires a working understanding of the direct or variable costs that occur from revenue generation, fixed expenses, costs of the products being sold or produced, and the revenue required to break even. This is the first step toward financial management.
- Establish a written twelve-month financial budget. The budget should include revenue projections, what actions will be necessary to achieve the revenue targets, and a budget for each line item of every expense, including costs of goods sold, variable expenses, and fixed expenses. Be sure to include what actions will be necessary to achieve the targeted expense numbers.
- Search for production and cost efficiencies to increase your gross profit margin.
- Search for alternative ways to structure expenses, with an aim to switch fixed costs to variable costs. The advantage is that variable costs are not incurred unless revenue is generated. For example, change the compensation of salespeople from salary to commission on sales.
- List corrective actions to increase cash flow through improved management of your asset and liability accounts.
- Get your bank involved as an active partner in your financial decisions.
- Invest time to plan your investment activities, looking for the best places to disperse excess cash. For example, how much cash should be dispersed to owners as dividends, to pay down debt, or to use for capital investments.
- Establish cash reserves to replace depreciating assets.
- Conduct periodic financial health assessments, and develop lists of corrective actions that will close the gap between actual and budgeted numbers.
- Create a board of advisors who meet quarterly for the purpose of providing financial management ideas and performance accountability.