This is my first article BusinessBlogs.co.nz. I’ll try to tell you what usually remains untold about company management and control. I’ll also try to explain you why an obscure branch of IT technology, Business Intelligence, goes hand to hand with management and control. Let’s go.

Have you ever thought about what can kill your business? I’m sure you did many times. Actually there are 3 easy concepts that can help you assuring the long term wealth of your business. These are 3, rather simple, checks you can do to verify the chances your business have to grow and prosper.

Every company, big or small, must be constantly balanced. Better, there are 3 balances that must be kept.

A business is financially balanced (in financial equilibrium) if it can pay all the bills when they are due. You should be able to pay for whatever you need to keep the company up and running (including debt) with your ordinary activities revenues. Any imbalance means that money must be harvested, from banks, investors etc, to keep the company running. Protracted imbalances may lead to a cash crisis that can actually kill the company. To be sure not to incur into financial imbalances, you have to forecast and constantly update your cash flow statement for the months to come. How exactly to build a cash flow is beyond the scope of this article but we’ll see it in the future.

A business is economically balanced (economic equilibrium) if there’s a margin after every cost has been accounted for. This is not the same as before because you buy raw materials today, use them after one month, sell after two and cash in after three (this is often referred as the monetary cycle), but this is done for the single reason to produce an income. In other words, disregarding the actual payments, every company activity is profitable or not, it produces a positive margin or not.

Your company as a whole, for each month of activity, must produce a positive margin. If your margin is red, cash flowing in from previous periods can temporarily compensate, than you fall back on the case above.

Note that you can have continuous row of positive margins but hit a cash crisis, because an unforeseen expense has lowered your cash or an important customer has delayed its payments. You can do everything well and still have cash problems. This is why the financial balance is more important than the economic balance and must be carefully safeguarded.

The third and final balance is the equity balance. A company has been founded upon an amount of money. In the medium/long term, the company must repay this equity in terms of dividends. The interest rate on the equity should also be higher than other investments to remain a viable option for the investors. This measures if the company can be profitable in the medium/long term. If every income cent is invested back in the company to make it grow or for R&D, nothing is left to pay the investors which, in turn, invested in a view to gain money. For a small, family owned, company, keeping it running is enough to make a living but, for larger companies, this may be a crucial, long term parameter.

So, when reviewing figures, start thinking in terms of the three balances, and I bet you’ll discover something new. Let me know what it is.

Take care