The 5 Magic Beans of Business Growth

Fairy tales are imaginary stories involving fantastic powers, abilities, characters and creatures. They may be targeted for children, but sometimes you can find hidden wisdom for all ages if you look for it. As in Jack in the Beanstalk, Jack was not focused on the number of magic beans he received in trade for the family’s cow, but rather in their potential. The same holds true for your business and whether or not you simply count your beans or focus on growing them. The magic comes from you, your people, your products/services, and the processes you have in place. So to make the magic happen, what are the financial reports you need to ensure that you are growing your business?

1) Monitor Your Beans Growth. There is no beanstalk in the sky without first planting the beans in the ground. It begins with timely, accurate monthly financial closings. This is a basic financial function for every business. Your monthly financials will tell you what has happened during the past month along with how that correlates to the quarter and fiscal year. When properly prepared and analyzed, your Balance Sheet and Income Statement are the foundation for every financial decision you will make for your business.

2) How High Is Your Beanstalk? In short, if you are serious about growth, you need the ability to measure it. Your forecast is an estimate of what will actually be achieved and can be adjusted as you progress or regress. Every facet of your business benefits from a forecast. Your marketing, purchasing, sales, R&D, production, shipping, human resources, and accounting departments all have their specific needs for a forecast. It is essential so they can evaluate their departmental needs and then develop logistical plans to reach your revenue benchmarks. Once your forecast is in place, determining a budget is also needed. Your budget will track where you want the business to go during a designated time. The forecast and budget go hand in hand.

3) Fee, Fi, Fo, Fum. At the top of your beanstalk, or anywhere along its way, you want to reduce risks. You need to know how to predict the financial outcome before you face a possible giant in your path. “What if” scenarios can do just that. They evaluate the expected outcome of a business venture, purchase, or investment that was not in your original forecast. For instance, let’s say you want to buy a piece of equipment. The “What If” scenario can plug in this purchase to see how it will impact your business in terms of cash flow, profits, and any other areas that affect your financial health before the money leaves your account. This allows you to avoid the ogre eating you for breakfast and helps you maintain profitable growth in the process.

4) The Golden Eggs. You have to manage your available cash very carefully unless you own a goose that lays golden eggs. Let’s assume the former. A Statement of Cash Flows allows you to analyze and increase your cash flow. This report shows categorically your Operating, Finance, and Investment cash for a designated period. It should highlight what, and how, various categories are affecting your cash. For example, changes in your Accounts Receivable, Inventory, Operating Liabilities, Accounts Payable, Depreciation, credit policies and terms all can play a factor in your cash. Having a sufficient amount of working capital is critical to your business and a key ingredient to growing your business profitably.

5) Live Happily Ever After. Your end goal may be any number of exit strategies. The common goal though is to build a strong, profitable company that is growing or has plenty of growth potential. In order to achieve optimum results, you must nurture your growth by doing monthly closings, have a forecast and budget in place, evaluate scenarios how they will impact your business before you take action, and monitor your cash flow. You should also analyze the ratios between your balance sheet, income statement and cash flow statement. But it doesn’t end there. You should also be looking at other ratios such Debt-to-Equity or Average Collection Period for example. This ensures that you are focusing on the most important areas of your business at any given time.

“So Jack climbed and climbed…till at last he reached the sky.” And with the proper accounting process and personnel, the sky is the limit when it comes to utilizing a full range of financial reports you can use as to grow your business. This will make certain your company is maximizing every opportunity to eliminate any giant in its path and its ability to secure your golden eggs. There’s magic in them beans.

Written By John Bilotta