Finance can often seem overwhelming, especially for entrepreneurs without a financial background. Knowing the numbers is critical.
Amidst the jumble of formulas, financial statements, and spreadsheets, the true significance of finance can get lost. However, as entrepreneurs in the service industry, we must remember that finance isn’t just about spreadsheets. It is fundamentally about real people and companies and how resources are allocated within your business and the broader economy.
A fundamental principle from a leading financial brand is that organizing finances is the first step toward wealth creation.
[STOP] If you are feeling overwhelmed with handling financing and accounting for your franchise, you shouldn't be -> Let's Talk
So, how do we eliminate the intimidation factor in finance and budgeting within the bustling restaurant industry?
Harvard Business School proposes that simplifying finance begins with understanding the three types of cash flow: operating, investing, and financing – and we agree.
- Operating cash flow signifies the net cash generated from regular business operations, indicating the organization’s efficiency in managing core activities.
- Investing cash flow represents the net cash from investment-related activities like buying or selling assets or investing in other businesses.
- Financing cash flow concerns the net cash from financial activities such as debt repayments, shareholder equity changes, or dividend payments. Together, these provide a holistic view of a company’s financial health.
Once you are clear on the three types of cash flows, we advise our clients to familiarize themselves with their numbers by addressing these questions:
- What is my prime profit?
- What is the payroll amount, and when is it due?
- Who are my primary suppliers?
- When is the rent due?
- When does my lease expire?
- What is the total of my debts?
- Does my business generate cash, and if so, how much?
Gaining clarity on the basics can help you organize and analyze your way to a more robust and stable business.
Final Thoughts
At GSS, we are immersed in the day-to-day challenges of those in the restaurant business, so we know how important it is to “know your numbers.”
As always, if you’d like to discuss your financials and how our state-of-the-art reporting tools can help your business or simply have comments about this month’s newsletter, please don’t hesitate to reach out.