WILL MY BUSINESS MAKE MONEY?

Welcome to the first module for the Will my business make money? finance course titled Introduction to financial health. This module aims to reframe your thinking about your businesses’ finances by doing foundational work on setting a strategic purpose that informs our drive to succeed. Together we will determine what is needed to effectively analyse our financial data and take a sneak peek at the management accounts analysis we will complete in Module 8.

The second module briefly reviews the structure and purpose of the big four financial statements – the balance sheet, income statement, cashflow statement and budget. In future modules we will draw on data from these financial statements, so it is imperative to have these statements up to date and available in order to effectively work through the course work. We will also explore our first two ratios: the break-even point and the safety margin as critical tools to determine the number of sales required to financially break even.

The first focus of financial analysis is to determine the profitability of the business. Having knowledge of your business’s profitability provides you with an overview of your business’ performance over time. Consulting the income statement, you will unpack and apply a collection of profitability ratios using the financial data at your disposal to create a financial dashboard for analysis.

Module 4 explores liquidity as a measurement of how agile a business is in terms of managing cash flow and paying off liabilities. The learning in this module will introduce you to four ratios to apply and measure your business’ liquidity. You will work towards completing the liquidity analysis sustainability brick, a reusable asset that provides you with a dashboard of comparison and a holistic view of how money is flowing in and out of your business.

By building your Cash Flow forecast you will be able to predict the in and outflow of money in your business over the next 12 months. Working through the learning content in this module, you will not only learn how to create your own forecast but start to analyse what the impact of financial management could be to the business strategy. Armed with this prediction, you will be better positioned to identify possible cash shortages in the future and even potential monetary surpluses that can be better leveraged to grow the business.

The aim of module 6 is to understand the world of solvency and get a long-term view of the company’s financial health by looking at the assets to debt and equity over time. Together we will work through solvency ratios and complete the solvency analysis sustainability brick as a tool to better leverage and grow the assets and match the debt commitments you currently have in your business.

As a business owner, you cannot mitigate the finances of your business without considering the payment of creditors and management of debtors. Module 7 lays out the creditor payment process and provides you with a tool to document this process in your business. You will also work through the Creditors Days ratio to gain a clearer picture of when your payments are going out to as it impacts the cash flow in your business.

In this final module we apply the concepts and tools we’ve covered from modules 1 to 7 to complete the full management accounts template. We will work through the completed example and start to analyse the results to better understand our business’s profitability, liquidity and solvency on a quarterly basis as well as in a yearly view. Armed with this information you can track and understand the true financial standing of the business in order to mitigate any risks identified and make sound strategic decisions on how to better management the business in the future.