The difference between businesses that fail or struggle to survive and businesses that are successful is their level of financial intelligence.
There are 3 stages of financial intelligence in small business
1. Start Up: Focus on Sales
When a small business starts it will focus on trying to increase sales as fast as possible. Unfortunately, many businesses don’t move past this stage. So they are always chasing sales even though those sales may be unprofitable.
There are 4 ways to increase sales.
2. Survival: Focus on Profit
As the business owner’s knowledge increases and matures, they will start to focus on profit. Profit is sales minus expenses. The business owner will shift their attention to controlling costs to keep the business going. It is important if you are in this stage not to forget about sales and focus too much on controlling costs.
There are two types of costs: variable and fixed. They should be treated differently depending on the business’s strategy.
3. Success: Focus on Cash Flow
Successful business owners focus on cash flow. They know that focusing solely on sales or profit is not enough for a successful business. The business pays the bills and funds the lifestyle of the owner with cash not profit or sales. These business owners understand how the cash moves in their business and how to make it work for them. Sales and profit are both important factors in cash flow but they are not the only factors. The successful business owner understands that cash flow is the true measure of the business’s performance.