Small business owners want to succeed but few have defined what success looks like. As Yogi Berra said, “If you don’t know where you’re going, you’ll end up someplace else”. Does your business have financial targets? Does uncertainty make it harder for you as a small business owner?
Ron Strieker, Ph.D. of The Strieker Group, an Atlanta based talent management firm, uses the acronym ACE which stands for Awareness, Choice, and Execution to describe the process of accomplishing a goal.
“Successful business owners are Aware of their capabilities; Choose areas for growth and opportunity based on this understanding and then Execute these priorities ahead of the competition” Ron Strieker, Ph.D.
Like the ACE acronym, when a business hits its financial targets it does it by performing three core financial activities both internal and external to their small business accounting software.
Should you review financial statements regularly?
Business owners get awareness from timely and accurate financial statements. Month in and month out the business can see what resources it has to deploy and how those resources are being used. Financial statements report on how effective the business resources have been used. Without the basic awareness that timely and accurate financial statements provide, the business will not be able to make meaningful choices into how to use their resources or if the resources available are sufficient to get the business to its financial targets.
How are strategic forecasts different?
It has been said that if you don’t know where you are, you can’t get where you’re going. Just as financial statements tell you where you are, strategic forecasts help get you to where you’re going. Don’t confuse a forecast for a strategic forecast. A forecast on its own is just an extension of history. A strategic forecast includes thoughts and plans for action that will take you from your history to your future. Once you are aware of where your business is then you can make the choices that will put the business on a viable path to where you want it to be, your financial target.
Why perform variance analysis?
Every day or the month, the business then executes on its plans. The financial statements are used to track progress and when compared to the strategic forecasts, the variance analysis provides invaluable feedback by bridging the gap between plans and results. Variance analysis should be carried out as a continuous feedback loop built around “awareness, choice, execute” that enables the business to modify its deployment of resources and leads to hitting the financial targets.
Use ACE with your business to achieve greater profits with financial understanding and actionable plans. Make sure that you are starting with accurate and timely financial reports and that with them you are not only creating strategic forecasts but also are identifying when and why your actual results are varying from your plans so that you can choose how to adjust your strategy. Repeat the process and you will hit your financial targets and be more profitable.
The Shared Finance Center provides outsourced accounting, bookkeeping and fractional CFO support to small business owners and in doing so we heavily focus on improving cash flows. We are headquartered in Roswell, Georgia and work with clients across the United States. If you think that this post would be helpful to anyone you know, please pass it along. Also please follow our blog for regular tips to grow your business.