Guest post by Howie Bick

The finances of a business are one of the important aspects to keep a business running, operating, and functioning. Each business comes with different expenses, different levels of income, and different capital requirements. There are lots of reasons why it’s important to keep a close eye on its finances, to keep a company operating or running, allowing a company to create, innovate, or develop new ideas, gaining a sense of what a company can and cannot afford, insight and information into the market a company is operating in, and the way it’s performing, and giving a company or business the opportunity to prepare for what might be ahead, or any events that might arise affecting it’s business, market share, or the market dynamic.

The Need To Have Finances or Resources Available To Operate

Without having the necessary finances, and capital available, a business can’t function or operate. A lot of the tasks and projects associated with a business, often require some level of investment or capital. Whether it’s having enough capital to purchase inventory, pay the lease or rent for your space, or pay your employees’ salaries, a company or business needs to have capital to settle these expenses. Without the expenses being paid or fulfilled, a business can’t continue to produce or generate income. In order to maintain the steady stream of income or revenue, a business needs to maintain a certain level of capital or resources available.

The Way Finances Enable A Company To Create, Innovate, and Experiment

The finances of a company have the opportunity to provide it with a unique advantage in the marketplace or prove to be a disadvantage. Companies who are less equipped, or poorly manage their finances, means they’ll have less capital to invest, to create, to explore, and to innovate with. An important aspect of business to stay at the forefront of your industry and evolving with the needs or changes of the marketplace. Without having the necessary capital to explore new ideas, experiment new hypothesis, or attempt to enter into new markets, a business can’t keep growing. It’s important for a business to continue growing, and building its revenue, income stream, and market share. Without having the ability to grow and develop, a company can allow competitors to enter into the market, and capture part of its market share. Being able to explore, create, and innovate is a major advantage within business, and one that a company that is well equipped or having its finances properly managed can do. Without having the necessary resources or capital, which can arise due to a mismanagement of finances, will prevent a business from growing, innovating, experimenting, and creating new revenues, new products, or entering into new markets.

Having A Sense of What A Business Can and Can’t Afford

Part of the reason why it’s important to manage the finances of a business and monitor it’s levels closely, is to know or understand what a company or business can afford, and what it can’t. Without having an idea of the type of income or revenue incoming, or ahead, paired with the amount of resources or capital a business has on hand, it’s very difficult to know what you can afford, and what you can’t. The price to pay for that, is possibly growing too fast, or overinvesting at one point. Allocating too many resources at one time, can force a business to grow slower at a point in the future, or have to refrain or hold back from expenses sometime in the future. It’s important to have a good sense on the amount of capital a company has, the amount that’s incoming, and the type of expenses that are upcoming to have an idea of the type of investments.

The Knowledge or Insight a Company’s Finances Provides

Keeping an eye on the finances of a business also gives you valuable insight, intelligence, and knowledge about the way the business is operating, the type of performance it’s having, and its position within the market. Understanding the way, a business is performing gives a company insight into the type of strategy it should have. Whether they should be aggressive, conservative, or neutral given the current business climate or market circumstances. You’re able to see the type of supply and demand in the market. Understanding the health or current dynamic within a market is important during a company’s operations. You’re able to get a sense of the position a company has in a marketplace, whether it’s increasing or decreasing. It’s also great for having a sense of the type of problems or struggles a business is having, giving a company an idea where it needs to improve, the place it can become more effective, and the type of solutions it needs to find or create. Seeing the way, a business has trended quarter over quarter, year over year, and whether it’s aligned with its guidance provides a sense of progress, growth, or decline. You’re able to see which marketing campaigns proved to be effective, which products or services have been the most profitable, and which costs are too high or can be improved upon.

Helping Companies Prepare and Plan For What’s Ahead

Another reason why it’s important for a business to keep a close eye on its finances, and continue monitoring the type of levels, income, and resources it has, is in order to prepare and plan for what’s ahead, and what the company expects to happen. The way a company positions itself for the near future, and far future depends on the types of decisions a company makes in the present, and the preparations it takes prior to any events occurring. By having a sense of how the company is doing, whether it’s balance sheet is strong, the industry or area it’s working in might experience a decline, or their might be a change in the supply or demand for a product or service is important to foresee before it happens for a business. By making the right financial decisions, and managing its level of capital and resources, a company can put themselves in a strong and sturdy position financially to continue operating, or to continue growing and expanding.

Conclusion

The finances behind a business are an important element to running a business, keeping it operating and functioning, continuing to grow or position a business for what lies ahead. Each company or business has a certain amount of capital or resources it needs to keep available in order to pay for its expenses, any important expenditures, and the costs associated with the running of its business. Effectively managing the finances behind a business can allow a company to innovate, create, and develop new ideas, products, and services to grow or expand its business. Finding new markets to enter into, creating new products or services, or working on a new idea often require available capital or resources. Much of what business analysts do is to analyze, understand, and evaluate the current health of company, its position in the marketplace, and the level it’s operating and performing at. By understanding the position, a company is in financially, you’re able to have a sense of what the company can and cannot afford. The type of investments it can make, the number of expenses it has covered, and whether it’s equipped to handle the company’s operations. The knowledge or insight a company’s finances provide is incredibly valuable to understand the current dynamic within a market, the type of performance or operations it’s currently experiencing, and any problems or issues weighing on the company as well. By having a sense of the way, a company positioned financially, a company can plan or prepare for what lies ahead. Whether if it’s a market slowdown, new entrants or more competition, or the need to innovate and update its products or services, you can prepare or plan for any major changes or developments that might occur. Keeping an eye on the finances of a business, managing it’s movements and it’s fluctuations, and having a firm grasp on the type of capital on hand and coming in or going out, is an incredibly important aspect to running or maintaining any business, company, or project.

Howie Bick is the founder of The Analyst Handbook. The Analyst Handbook is a collection of 16 guides created to help current and aspiring Analysts advance their careers. Prior to founding The Analyst Handbook, Howie was a financial analyst.