There are several reasons why proper financial documentation is important for your start up or business for taxation, legal reporting requirements, accountability, financing procurement, and management decision making.

In all cases, “The Numbers Don’t Lie.” Quite often, especially in small businesses, there is a large amount of emotional attachment to particular programs or directions, and they are maintained regardless of the financial consequences. Replace the emotion with numbers. Proper financial tools can identify these mis-directions and provide input on how to fix these issues.

There are several tools that can be used. For general direction and planning, I like to use a relatively simple financial (profitability) model. Something that collects all the financial information in a company, and allows me to make changes and show me what results those changes have on two major things:

1) The future profit/loss position

2) The current and future cash flow positions (Especially for companies with dynamic inventories, cash management and forecasting is key… you don’t want to be short at the end of the month)

The key components of most financial models include:

· Start-up & Fixed Costs

o All the things we need to get the business started; can sometimes include inventory, equipment, and probably some of your time

· Operating Costs

o The devil is in the detail. Keep those costs down by knowing what they are! There are usually many more than you realize… and then understand where you can save (economies of scale)

· Revenues

o Our favourite part – how we make money!

· Financial Considerations

o This includes things like taxes, depreciation, & subsidies

The more you know about your company’s financial position, the easier it will be to present to financiers, bankers, partners & yourself… It is the most important business document that you will ever have.