Why Management Balance Is Important: Real-Life Examples
Posted: Sat Jan 18, 2025 6:05 am
Let's look at three different situations to see why management balance is so important.
Situation 1
A newly established trading and manufacturing company that is actively developing. After two years of fruitful activity, finances are required for further scaling.
One of the company's co-owners, who has a higher economic education, created a system of tables in which indicators are entered and basic reports are generated, but there is no balance among them. Storage of primary data is organized in the 1C system.
The second investor, a representative of another state, asked to provide a balance sheet before making new investment injections in order to get acquainted with the current state of affairs. Since the company keeps records of fixed assets, it is easy to draw up such a document. But this is only at first glance, because when forming the report, a discrepancy of a large amount in assets and liabilities was revealed. It is almost impossible to find a specific error in a two-year work horizon, just as no one knows which line needs to be adjusted in the report.
As a result, the investor refused to give money until the company's accounting was put in order. To receive investments and attract loans, it is necessary to have a correct balance sheet.
Increase Your Profits by 10X: 5 Key Metrics You Must Track
Alexander Kuleshov
Alexander Kuleshov
General Director of Sales Generator LLC
Read more posts on my personal blog:
After working with over 300 online projects , I can guarantee: monitor these metrics weekly and your company will not only survive, but also increase its profits by 10 times!
In the context of sanctions and crisis, knowing the ROI of your advertising decides whether your business will be successful. Tracking these 5 critical indicators is the key to your prosperity.
What you get for free:
5 Key Metrics to Increase Profits by 220%
The Secret ROI Formula: Instant Advertising Efficiency Calculator
Anti-crisis Solutions Matrix: Find student data packagethe Perfect Strategy for Your Business in 15 Minutes
We have prepared all the documents and templates with formulas for you. And yes, it is FREE:
Download documents for free
Already downloaded
153318
Situation 2
The monthly trading turnover of the sole proprietorship is $25,000. Reporting is done in Google Sheets, as it is fast, easy and beautiful. As often happens, no one has ever reconciled the results, so over three quarters, the difference under the “Money” item was over $3,500. The actual values turned out to be less than the balance sheet values.
After careful analysis, unaccounted expenses amounting to $2,500 were discovered. The decrease in the final profit did not please the owners of the company. The mitigating circumstance was that the accounts payable decreased, as they had been paid long ago.
A discrepancy of $2,000 was found in the inventory balances. This is explained by the fact that the goods were written off in the CRM system, but the system did not show specific amounts of write-offs, so no one took them into account in the reporting. Only a thorough analysis allowed us to identify this shortcoming of the system, which must be improved as soon as possible. It should be understood that under the pretext of write-offs, a process of elementary theft is quite likely. Without a properly compiled balance sheet and management accounting, it is impossible to carry out operational control over current activities.
Situation 3
The organization provides design services, which is a long-term process.
Before starting work on a project, customers made an advance payment of 50%. Since there was never a shortage of funds in circulation, they were paid out as dividends at the end of each month. At some point, a crisis occurred, as a result of which the flow of new contracts sharply decreased, and funds for work on current and already paid for projects by clients became insufficient.
Shortage of funds
Source: shutterstock.com
With a balance sheet, it is easy to see that the entire business was operating on accounts payable, and this must be taken into account before paying dividends.
If the company's profit is small and there is a lot of free money, then this is evidence that the business is characterized by large accounts payable. With the help of the balance sheet, it is easy to track its parameters.
The most common question among entrepreneurs is the following phrase: “Why is there never enough money?”
This question seems especially inappropriate if the company has a profit. When analyzing the balance sheet, it immediately becomes clear where the money is: invested in fixed assets, goods, or in accounts receivable.
To release funds from freezing, you must do the following:
more actively cooperate with clients on the issue of refunds;
promptly sell goods from stock, and then order smaller quantities, but more frequently;
revise the approach to turnover and financial cycles, the calculation of which is based on the balance sheet.
The management balance sheet shows where the money is in a situation where there is profit but no funds.
Situation 1
A newly established trading and manufacturing company that is actively developing. After two years of fruitful activity, finances are required for further scaling.
One of the company's co-owners, who has a higher economic education, created a system of tables in which indicators are entered and basic reports are generated, but there is no balance among them. Storage of primary data is organized in the 1C system.
The second investor, a representative of another state, asked to provide a balance sheet before making new investment injections in order to get acquainted with the current state of affairs. Since the company keeps records of fixed assets, it is easy to draw up such a document. But this is only at first glance, because when forming the report, a discrepancy of a large amount in assets and liabilities was revealed. It is almost impossible to find a specific error in a two-year work horizon, just as no one knows which line needs to be adjusted in the report.
As a result, the investor refused to give money until the company's accounting was put in order. To receive investments and attract loans, it is necessary to have a correct balance sheet.
Increase Your Profits by 10X: 5 Key Metrics You Must Track
Alexander Kuleshov
Alexander Kuleshov
General Director of Sales Generator LLC
Read more posts on my personal blog:
After working with over 300 online projects , I can guarantee: monitor these metrics weekly and your company will not only survive, but also increase its profits by 10 times!
In the context of sanctions and crisis, knowing the ROI of your advertising decides whether your business will be successful. Tracking these 5 critical indicators is the key to your prosperity.
What you get for free:
5 Key Metrics to Increase Profits by 220%
The Secret ROI Formula: Instant Advertising Efficiency Calculator
Anti-crisis Solutions Matrix: Find student data packagethe Perfect Strategy for Your Business in 15 Minutes
We have prepared all the documents and templates with formulas for you. And yes, it is FREE:
Download documents for free
Already downloaded
153318
Situation 2
The monthly trading turnover of the sole proprietorship is $25,000. Reporting is done in Google Sheets, as it is fast, easy and beautiful. As often happens, no one has ever reconciled the results, so over three quarters, the difference under the “Money” item was over $3,500. The actual values turned out to be less than the balance sheet values.
After careful analysis, unaccounted expenses amounting to $2,500 were discovered. The decrease in the final profit did not please the owners of the company. The mitigating circumstance was that the accounts payable decreased, as they had been paid long ago.
A discrepancy of $2,000 was found in the inventory balances. This is explained by the fact that the goods were written off in the CRM system, but the system did not show specific amounts of write-offs, so no one took them into account in the reporting. Only a thorough analysis allowed us to identify this shortcoming of the system, which must be improved as soon as possible. It should be understood that under the pretext of write-offs, a process of elementary theft is quite likely. Without a properly compiled balance sheet and management accounting, it is impossible to carry out operational control over current activities.
Situation 3
The organization provides design services, which is a long-term process.
Before starting work on a project, customers made an advance payment of 50%. Since there was never a shortage of funds in circulation, they were paid out as dividends at the end of each month. At some point, a crisis occurred, as a result of which the flow of new contracts sharply decreased, and funds for work on current and already paid for projects by clients became insufficient.
Shortage of funds
Source: shutterstock.com
With a balance sheet, it is easy to see that the entire business was operating on accounts payable, and this must be taken into account before paying dividends.
If the company's profit is small and there is a lot of free money, then this is evidence that the business is characterized by large accounts payable. With the help of the balance sheet, it is easy to track its parameters.
The most common question among entrepreneurs is the following phrase: “Why is there never enough money?”
This question seems especially inappropriate if the company has a profit. When analyzing the balance sheet, it immediately becomes clear where the money is: invested in fixed assets, goods, or in accounts receivable.
To release funds from freezing, you must do the following:
more actively cooperate with clients on the issue of refunds;
promptly sell goods from stock, and then order smaller quantities, but more frequently;
revise the approach to turnover and financial cycles, the calculation of which is based on the balance sheet.
The management balance sheet shows where the money is in a situation where there is profit but no funds.