West Points

Monday, December 13, 2010

It’s All in Being Prepared

By Loyd Hambrick
Chief Operating Officer

New and valuable tools – I too am excited about the new tools we are preparing to offer to local business owners and the increased prosperity they can bring to our communities. The program Heather spoke of in her last post, ProfitCents, presents some great tools for analyzing existing businesses. The ability to compare performance of an existing business to industry standards as well as to past years’ performance levels can have a great impact on a business owner’s ability to make sound decisions. However, as they are brand new to us, it will it take us a bit to get proficient with these tools. It is always West Company’s desire that business advisors be comfortable with the tools they use and offer to businesses before they are rolled out. That being said, there is still much we can do to help you improve your knowledge fostering better decision-making.

GIGO – Computers have been part of both my personal and business lives for a long time. My first exposure came while attending college at CSUS in the form of a programming class using a language called FORTRAN. Our project involved creating a computer program that compared foreign currencies to US dollars and using a compiler to translate the code into computer language. For those of you that can’t remember ever using a compiler, don’t worry about it, they are hidden in today’s computer world; for those of you who have used a compiler, I am dating myself. After inputting code into the compiler, our jobs as students was to begin to fix each of the many error messages the compiler would spit out. Each message was a clue to what was wrong about the code entered. The biggest frustration came after fixing the long list of errors to the point the program worked, only to get an incorrect answer. That is when one was faced with a tried and true basic principle of computer programmers– GIGO (pronounced gi go) – which stands for Garbage In, Garbage Out. Throughout my thirty plus years starting, owning, operating, and selling small businesses, I have found this principle can be applied to many different areas of business management including the most important aspect financial management. With computer programming, GIGO means that even if your code is of top quality in its writing, if the premise you use to begin the process is flawed or “garbage”, the result will certainly be “garbage”. This basic principle should be applied when analyzing financial data, the vital statistics of a successful small business.

What’s needed – Endless numbers of financial management tools, such as ProfitCents, exist in today’s business world including products that will collect the necessary data for you provided you implement and follow data collection systems. Many of those products have made my business management life much simpler and efficient and I highly recommend implementing such technology. But of huge importance is GIGO! You must make sure the information you are inputting is data of sound and accurate origins. Otherwise, the conclusions will be garbage and your decision-making flawed. Accurate and valuable analysis utilizing any kind of tool, whether manual or automatic, requires first having data to analyze. Generally, at least two specific financial documents are required, a profit and loss statement and a balance sheet; many times a cash-flow statement is required as well. These types of tools can make the difference between a stressed-out business owner and one that is cool, calm, and collected because knowledge is power. When you have accurate financial knowledge about your business, you can steer its course into calmer and more prosperous waters as well as take advantage of opportunities that present themselves.

The bottom line – You can successfully manage your business finances if you will practice GIGO and get your financial information system created and implemented. Contact West Company today and schedule an appointment with an advisor who can help you understand chart of accounts, create a profit and loss statement, and replace any “garbage out” with sound financial knowledge improving your decision-making. While our SBDC business advisors are busy mastering the use of ProfitCents, we can help you get prepared to take full advantage of its potential for your business. Remember GIGO!

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