Financial Audit: Blind Spots in Business. P&L and Cashflow
P&L + cash flow
Profit is a measure of efficiency. With effective working capital management, a company generates not only profit but also cash flow (cash flow). To assess a client's financial health and potential, Eifos Hub examines the company's financial statements, including the balance sheet, profit and loss statement and cash flow statement.
The profit and loss (P&L) statement records all cash receipts from the sale of goods or services, reflects costs associated with production, provision of services, accounts for operating expenses and liabilities to contractors, suppliers and counterparties. The profit and loss account shows how much money a company has left after all costs have been taken into account. Net profit is the primary measure used in this report.
Profit is a measure of efficiency. With effective working capital management, a company generates not only profit but also cash flow (cash flow). To assess a client's financial health and potential, Eifos Hub examines the company's financial statements, including the balance sheet, profit and loss statement and cash flow statement.
The profit and loss (P&L) statement records all cash receipts from the sale of goods or services, reflects costs associated with production, provision of services, accounts for operating expenses and liabilities to contractors, suppliers and counterparties. The profit and loss account shows how much money a company has left after all costs have been taken into account. Net profit is the primary measure used in this report.
Cash shortages and bankruptcy
An unpleasant financial paradox: the safe is empty and the company is profitable; the safe is full of money and the company is making a loss. Why does this happen? Profit is a virtual measure, and it can be expressed in more than just money. And the problems of accounts receivable or illiquid production start to be considered at the stagnation stage, with all the consequences - 95% of small businesses go bankrupt within the first 3 years.
Cash gaps occur when cash flows do not match the company's financial commitments. Financial analysis helps to assess operating cash flows, debtors and creditors.
An unpleasant financial paradox: the safe is empty and the company is profitable; the safe is full of money and the company is making a loss. Why does this happen? Profit is a virtual measure, and it can be expressed in more than just money. And the problems of accounts receivable or illiquid production start to be considered at the stagnation stage, with all the consequences - 95% of small businesses go bankrupt within the first 3 years.
Cash gaps occur when cash flows do not match the company's financial commitments. Financial analysis helps to assess operating cash flows, debtors and creditors.
Invest in your business. Expand your reach. Scale up. Processes are in place and everything is under control. But suddenly they appear - blind spots. The entrepreneur has no time to look into the future, he is preoccupied with problems, often of his own making. "Blind spots are not obvious and do not seem to affect the result. Eifos Hub believes that one of the biggest problems for companies is the chaos in management accounting and finance.
A financial audit identifies blind spots and potential business risks, catching errors and missed opportunities. It is not just a formal study, but a strategic approach to financial management that can help avoid cash flow problems, ensure financial stability and lay the foundations for a sustainable and successful business in the long term. What do you need to know before you take your business to scale? What factors indicate problems in the business?
Lack of systematic management
Each stage of a company's development requires its own strategy and approach. When entrepreneurs want to scale up their business, they often do not consider that they need to change not only the structure but also the management methods.
Small and medium sized businesses tend to focus on operational activities, on making money here and now, on the principle of "what came and went is mine". The usual "marketing-sales-leads-conversions" scheme changes the entire business model when scaled up, requiring "management-finance-business-processes-HR-strategies" to be tied into one system.
The problems start when the entrepreneur, having collected prepayments, has the illusion of having already made a profit. Cash gaps and bankruptcy are the result of not understanding the difference between P&L and cash flow.
A financial audit helps to clearly define what results can be expected at a certain stage of business development.
A financial audit identifies blind spots and potential business risks, catching errors and missed opportunities. It is not just a formal study, but a strategic approach to financial management that can help avoid cash flow problems, ensure financial stability and lay the foundations for a sustainable and successful business in the long term. What do you need to know before you take your business to scale? What factors indicate problems in the business?
Lack of systematic management
Each stage of a company's development requires its own strategy and approach. When entrepreneurs want to scale up their business, they often do not consider that they need to change not only the structure but also the management methods.
Small and medium sized businesses tend to focus on operational activities, on making money here and now, on the principle of "what came and went is mine". The usual "marketing-sales-leads-conversions" scheme changes the entire business model when scaled up, requiring "management-finance-business-processes-HR-strategies" to be tied into one system.
The problems start when the entrepreneur, having collected prepayments, has the illusion of having already made a profit. Cash gaps and bankruptcy are the result of not understanding the difference between P&L and cash flow.
A financial audit helps to clearly define what results can be expected at a certain stage of business development.
The most important rule of business development
Axiom: only earned profit can be invested in business development. A common mistake made by entrepreneurs: testing hypotheses with cash from operations, i.e. investing unearned money in an idea. This is the wrong approach.
Without a system of reserve funds (safety fund and development fund) it will be difficult to move forward, return investment to shareholders, scale and grow the business. Failure to think this step through has fatal consequences. How much should be invested in the reserve funds? How should profits be distributed (50:50, 70:30)? These questions are determined at the idea stage. As the business develops, the figures and conditions are changed and revised.
Effective strategic financial management links management, business processes, people management and strategy.
Identifying consequences and taking responsibility
How acceptable is the 'planned loss' formula? Since the main criterion for business performance is profit, the question of how long the business can survive without making a profit becomes a key issue in strategic management. Some start-ups plan for losses in the early stages. It is important to define the "break-even point" in advance: at a given point A, there should be a clear understanding of what results the business should deliver at point B.
All business decisions should be based solely on market research and data analysis. The financial audit helps to clearly define what results the business should deliver at each stage of its development.
So
The basis of any serious approach to the financial component of a business is to clearly document all aspects of the business, including a cash flow statement (for operating, financing and investing activities), inventory accounting, taxes, credits and expenses. The basic task of any entrepreneur is to set up an accounting system and make all management decisions based on financial analysis, not on emotion and external influences. This systematic approach helps to avoid cash shortages and bankruptcy.
Axiom: only earned profit can be invested in business development. A common mistake made by entrepreneurs: testing hypotheses with cash from operations, i.e. investing unearned money in an idea. This is the wrong approach.
Without a system of reserve funds (safety fund and development fund) it will be difficult to move forward, return investment to shareholders, scale and grow the business. Failure to think this step through has fatal consequences. How much should be invested in the reserve funds? How should profits be distributed (50:50, 70:30)? These questions are determined at the idea stage. As the business develops, the figures and conditions are changed and revised.
Effective strategic financial management links management, business processes, people management and strategy.
Identifying consequences and taking responsibility
How acceptable is the 'planned loss' formula? Since the main criterion for business performance is profit, the question of how long the business can survive without making a profit becomes a key issue in strategic management. Some start-ups plan for losses in the early stages. It is important to define the "break-even point" in advance: at a given point A, there should be a clear understanding of what results the business should deliver at point B.
All business decisions should be based solely on market research and data analysis. The financial audit helps to clearly define what results the business should deliver at each stage of its development.
So
The basis of any serious approach to the financial component of a business is to clearly document all aspects of the business, including a cash flow statement (for operating, financing and investing activities), inventory accounting, taxes, credits and expenses. The basic task of any entrepreneur is to set up an accounting system and make all management decisions based on financial analysis, not on emotion and external influences. This systematic approach helps to avoid cash shortages and bankruptcy.
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