Basics of finance that CEO`s of small businesses SHOULD KNOW

No matter how big or small your business is, the overall responsibility falls on the shoulders of the CEO. If you own a small business, you rule everything.

The most important tasks of the Chief executive officers that lead to success or failure are found in the knowledge and practice of the basics of financial management.

Studies have revealed that more than half of small businesses fail within the first four years. This clearly shows that their failure could be greatly reduced if, before starting a business, the founder or CEO would be needed to excel in a course that teaches business financial basics and how a business is operated using them.

Chief executive officers

In case you need some assistance, there are some key elements that would be important:

  • Chief executive officers should not do accounting by themselves. The ones who are successful learn ways of managing regular financial statements that are produced by internal or external accountants.
  • Successful chief executive officers also know what their margins of gross profit need to be and what it is

  • Furthermore, they also keep track of their monthly sales and expense ratios so as to know when to alter spending.
  • Also, savvy managers monitor levels of inventory against projected sales, cash and receivables.
  • Additionally, good CEOs have the ability to calculate accounts receivable days and account payable days. They also have an understanding of the connection between the two as well as the effect of that link on cash.
  • Chief executive officers that have discipline create a strategy of capitalization that blends retained earnings with short and long term sources of capital such as bank debts.
  • Competent chief executive officers also identify financial indicators that are critical. They further identify the ratios exposed on the balance sheet as well as its link to the profit and loss statement.
  • Good CEOs believe and prepare for how growth in sales become risky when not adequately funded.
  • When business ceases being profitable, professional CEOs identify the top barriers to profitability and address them very fast without emotions.
  • Successful CEOs also delegate several tasks well; however, they stay abreast with the firm’s cash flow.

  • Finally, understand and track the connection between the expense clock, the sales and cash clock.

In case you already own a small business, make sure to keep these things in mind. A good manager is also one with credibility and tells the truth all the time.

Once you lose credibility, you will not have the ability to lead well.

Moreover, you also need to be competent. If the employees don’t trust your judgement, you will have no influence over their behavior and activities. To show competency, you need to understand the business model of the company. You need to be willing to adapt as well as learn.

A CEO also needs to be caring so as to show that he values the organization more than himself.

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