Section 04 · Manage · Are we in control, and how do we know?
Finance
7 modules · Reading, managing and deciding with the numbers.
Part of the MANAGE curriculum. Access all MANAGE modules: USD 77.22. See MANAGE access →
The accountant sends the accounts. The founder files them without being sure what they say.
Why it mattersRead together, the three statements show performance, position and cash. An owner who reads them fluently can spot trouble early, speak credibly to banks and investors, and hold the finance function to account rather than depending on it entirely.
You leave withThe ability to read your own income statement, balance sheet and cash flow.
Related: M33 Cash vs Profit · M37 Management Accounting · M02 How the Business Makes Money · M34 Working Capital
Open M32 →Sales are up and the accounts show a profit. The bank account is empty.
Why it mattersMore businesses fail from a lack of cash than from a lack of profit. A profitable business that cannot meet its obligations is, for practical purposes, in crisis.
You leave withA reconciliation of profit to cash and a 13-week cash view.
Related: M34 Working Capital · M35 Receivables and Collections · M32 Reading the Financial Statements · M02 How the Business Makes Money
Illustrative teaching case: Revenue Without Cash
Open M33 →Growth consumes cash faster than profit replaces it. The more you sell, the tighter it gets.
Why it mattersThe cash conversion cycle determines how much funding growth requires. It is therefore one of the principal constraints on how fast a business can grow using its own resources.
You leave withYour cash conversion cycle and a plan to shorten it.
Related: M35 Receivables and Collections · M15 Inventory Management · M36 Payables and Supplier Terms · M33 Cash vs Profit
Illustrative teaching case: Revenue Without Cash
Open M34 →Customers pay when they choose. Credit terms are agreed case by case and followed up when someone remembers.
Why it mattersA clear credit policy and a consistent collections routine collect cash faster. They also protect customer relationships, somewhat counter-intuitively, because the rules are the same for everyone and the conversation is no longer personal.
You leave withA credit policy and a weekly collections routine.
Related: M34 Working Capital · M33 Cash vs Profit · M46 Customer Profitability · M36 Payables and Supplier Terms
Open M35 →Suppliers are paid whenever there is money, in whatever order the loudest one demands.
Why it mattersManaged payables protect cash and supplier relationships simultaneously. A predictable payment routine makes the business a better customer, because suppliers know when they will be paid, and a stronger negotiator, because the business knows its own position.
You leave withA payment policy and a weekly payment run.
Related: M16 Procurement · M34 Working Capital · M33 Cash vs Profit · M35 Receivables and Collections
Open M36 →The accounts arrive months late and are built for tax. They don't answer management questions.
Why it mattersManagement accounts turn finance from record-keeping into decision support. They show which parts of the business make money and which do not, and where performance is drifting from plan.
You leave withA monthly management accounts pack.
Related: M32 Reading the Financial Statements · M41 Management Information · M02 How the Business Makes Money · M38 Financial Decision-Making
Open M37 →Investments, hires and new lines are approved on enthusiasm. Their return is never checked.
Why it mattersA simple, consistent investment case improves the quality of decisions by forcing the owner to state an objective, consider alternatives and make assumptions explicit.
You leave withA one-page investment case you can use for any significant decision.
Related: M02 How the Business Makes Money · M56 Capital and Funding · M37 Management Accounting · M44 Decision Systems
Open M38 →
Also in Manage: Management Systems