Alaska Small Business Development Center

The Mystery of Financial Health

April 2, 2014

Life is business whether we choose to acknowledge that fact or not.  In our personal life mastering profit may be viewed as simply having saved money from our income to take a vacation to Hawaii—paid for in cash not credit. For many, mastering any topic or skill can be a daunting challenge. Mastering profit may be a task so overwhelming that many choose to forgo instead of tackling head on.  In the world of business this can all too easily result in financial disaster.  Scott Shane, the A. Malachi Mixon III Professor of Entrepreneurial Studies at Case Western Reserve University, and noted author writes:

“Five years after they were started, the Census Bureau finds that 45 percent of the new establishments and 43 percent of the new firms were still alive.  … I am making a very simple point: The typical new business started in the United States is no longer in operation five years after being founded. That’s true whether statisticians at the BLS [Bureau of Labor Statistics] or Census are doing the measuring and it’s true whether you measure new establishments or new firms.”

Many businesspersons are so busy running their company that spending time learning how to interpret and manage financial statements is the last thing they want to do.  When one begins the quest to become a better financial manager the resources available are seemingly unlimited. For example, a quick search for “business financial books” on www.amazon.com brought up 87,699 choices!  In our state, Alaska SBDC has offered business advising to existing businesses, start ups and budding entrepreneurs for over 26 years. One of the most highly praised classes offered is “Profit Mastery”, a 16-hour hands-on training experience designed to take the mystery out of financials. What I appreciate about the course is that the information is presented in a user friendly way. Attendees work through (with calculator, pencil, and paper) different business scenarios from their “Knowledge Driven Financial Performance” workbook.

A few of my favorite exercises include:

1) analyzing the Balance Sheet and Income Statement

2) creating a “scorecard” using these two statements that reflects the staying power, earning power, efficiency and working capital cycle of the business

3) break-even and growing profits

4) proper sales goals for business size.

The Profit Mastery process is designed to help business owners improve performance and profitability in a constantly changing and challenging economy. After taking the Profit Mastery course, Alaska SBDC business advisors are available for confidential, free, one-on-one business advising sessions.  This assistance can help the business owner put into practice the tools learned at the Profit Mastery workshop. The class fee is typically $395, but due to funding from the 2012 Jobs Act the course is offered for $200 for a limited time only.  Workshop schedules are available on our website at aksbdc.org. At the top menu bar simply click on WORKSHOPS for more information. You may also request your first counseling session, check out our free on-line tool kit and read about a few of our business success stories from that top menu bar.

In closing, I invite you to ponder the following. Profit pays for three things: debt repayment, reinvestment into the company and dividends paid to owner. These three always . . . until the owner Exits (sells/closes) the business venture. At Exit, under the best case scenario, business debt has been repaid, liquidation of assets has occurred, thus all profits are paid to the owner! Are you not realizing a profit in your business? Thinking about Growing, Reinventing or Exiting your venture? Perhaps it is time to take a Profit Mastery class and meet with an Alaska SBDC business advisor. All of us at Alaska SBDC strive every day to provide interactive tools and resources to help businesses thrive and create a lasting impact in their communities. We look forward to assisting you in the near future!

Written by Linda Koons Auger, Ketchikan Center Director

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