For companies large and small, there are certain financial guidelines that are universal to building financial success. Most CEOs are extremely well versed in the day-to-day vision of their company, but there are many financial items that most CEOs miss, often because they don’t have the proper tools. Here is a list of five financial fundamentals that will help business leaders achieve financial dominance.

1. Understand accounting basics. Reliable and accurate production of basic financial reports should be part of the day-to-day accounting process of any company. CEOs should understand how to read and interpret these reports and be prepared to inquire about items that appear unusual in nature. CEOs should also closely watch their cash-flow statement—commonly misunderstood, and therefore ignored, it can reveal reporting errors, detect fraudulent activity, and reveal sources and uses of cash that are otherwise vague to the owner. Studying the immediate history of the company enables the CEO to project into the future and make changes today to maximize the future earning potential of the company.
2. Analyze your company’s strengths and pitfalls. A CEO must fully understand the unique traits of its organization; this includes industry, stage in the business cycle, and the owner’s desired exit strategy, which can affect the desired financial outcomes. Ratio analysis can help identify potential pitfalls and weaknesses in the company. Weaknesses in key ratios may cause a company to investigate further and, for example, review their current incentive compensation plan and insurance policies, modify their current banking/debt structure and/or carefully monitor certain operating expenses. style="mso-bidi-font-weight: normal">
3. Maintain a budget. Most companies begin the budgeting process backwards by trying to predict the revenues of the company. A CEO should always start with the bottom line, and project that bottom line for the upcoming year based on factors such as exit strategy, required capital expenditures, and owner return. This number now provides a basis to begin working backwards.  Revenues are the last number completed in the budgeting cycle. This process allows the CEO to determine other critical elements of the business, including the company’s break-even point, the sales mix needed to achieve goals, and possible staffing or management changes.
4. Manage your cash flow. Managing cash flow begins with comprehending how much excess a company should maintain in reserves at various points during the year. A company must achieve the proper balance between short-term and long-term debt facilities and should monitor regularly. The goal is to look into the future of the company and make adjustments today to positively impact cash flow in the months ahead.
5. Tax positioning. To further ensure financial stability, a company needs to understand, review and proactively manage its tax position. The CEO and the CPA must be able make educated decisions with regard to estimated tax payments and owner distributions made throughout the year, and carefully perform tax planning at the year’s end.

The Bottom Line: Every decision made within a company, whether hiring/firing, developing a bonus or a new product line, truly has a financial component to the decision.

Shannon is the president and founder of CFO Strategic Partners, an Orlando-based company that provides firms with highly qualified financial executives on a consulting basis. In less than six years, the company has averaged 90 percent growth and has recently launched a franchise program in 30 states across the US. Shannon can be reached at 407-426-8288 or sbrouillette@cfosp.com. Visit http://www.cfosp.com/for more information.