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Financial Business Model Basics
Financial business is an extremely important aspect of running any organization. Many small and large businesses are built on the strength of strong financial foundations - the ability to obtain credit, raise funds, make investments, or both. There are a number of key functions that a financial business performs. The most obvious among these is the role of the lender or creditor. A lender provides the means by which money is borrowed or given to a company in exchange for security. A creditor provides a loan or other means of payment to a person or organization in exchange for that person or organization's promise to repay the lender.

The ability to attract and retain customers is crucial to a company's success, as well as its ability to meet its short-term and long-term goals. One important aspect of attracting and retaining customers is the ability to show that a business has the means to fulfill the organization's goals in the future. For this reason, many business owners engage in financial accounting activities to show the organization's ability to meet its short-term goals and to provide the assurances that it will be able to meet its long-term goals. To accomplish these goals, most successful financial business owners organize their finance s in the manner that they will be most effective for achieving those goals.

Organizational structure. To achieve its financial goals, a company must have a set of organizational structures in place that work together to provide the necessary functionality needed to meet the organization's revenue goals. This structure typically includes a president or CEO, a finance director, and a marketing or sales manager. At a minimum, there should be a single CFO and accounting personnel in place who report directly to the CEO. Many companies also have departments that focus on specific areas such as research and development, human resources, purchasing, selling, or production and quality control.

Determining and Measuring Profit. Financial reporting focuses first on the revenue growth goals of the organization. The purpose of this first step is to establish reasonable and sustainable profit margins so that the organization can plan, advertise, and operate effectively to achieve its long-term revenue goals.

Applying Financial Software. In order to achieve the goal of profitability, a small business owner should create and maintain a comprehensive financial software package. This software should include a detailed monthly budget planning process that identifies, evaluates, and monitors the expenses associated with daily operations as well as the over-all performance of the business. Additionally, the software should have the capacity to track sales and expenses, identify profitable customer relationships, forecast advertising costs, apply financial ratios to balance sheets, perform automatic asset management, create and track customer lists, generate income statements, and generate loan applications.

Creating Sales Forecast and Marketing Outlook. The accuracy of any forecast depends greatly on the accuracy of its forecasting formula. For this reason, small businesses should always put together a sales forecast and marketing outlook before the start of each fiscal year in order to assess where the company is in terms of both an annual and monthly basis and the steps they need to take to position the business for the future.

Evaluating Long-Term Cash Flow. A good financial business model will take into account the effect of any unexpected events on cash flow. For example, if a manufacturing plant is suddenly closed down, the loss of thousands of jobs, hundreds of millions of dollars in equipment, and tens of thousands of payroll employees all affect cash flow just as much as the opening of the plant itself. To properly assess and account for these effects, a financial business model should include both an estimate of the net cash inflows and an estimate of the net receipts for inventory, working capital, and investment. In addition, the forecast should provide a forward look at the ability of the company to continue to generate strong cash flows even in the face of drastic negative shocks to the cash-flow picture such as bankruptcy.

Evaluating Loss Measures. One of the most important steps small businesses must take is preparing and maintaining accurate and up-to-date loss statements. The loss statements describe the company's net income or gross profit, net loss, and net revenue loss. An accurate loss statement tells management the true picture of a business's true net income or profit. Any significant negative changes in cash flows should also be reported as part of the balance sheet.