It is rare to have a combination of traits residing in 1 person for both idea creativity and the logical approach to finance. But either skill can be learned. Starting up a new business requires both traits to be successful. Entrepreneurs, more often than not, exhibit creativity traits for envisioning new product or services, rather than being well-versed in finance. The most common scenario for the entrepreneur is to initiate an idea for a business and fill out the details of what it's all about, sell the idea to friends and backers and start working on it, and then find out in short order that he or she is a “babe in the wilderness” when it comes to knowing whether the company is progressing satisfactorily with respect to money issues or is having financial troubles. At that point, the entrepreneur either learns the basics of business accounting or hires someone who does understand them. In the process, the entrepreneur starts to worry about money issues instead of creativity issues, which if not overcome spells doom to the fledgling business. This need not happen and can be overcome.
Entrepreneurs do not need to be expert financial analysts to succeed. But they do need to know how to safely pass through the twisted and often perilous path of business finance to succeed. In this chapter, I will be your guide along this sometimes confusing and often intriguing journey. Businesses keep score via the finance reports. So to learn whether we have a good or bad score we need to understand and interpret the rules. The goal for this chapter is to provide an understanding of the operational characteristics of financial management of a business. We've already discovered some of them in our explorations of project management and new product introduction. Now we'll put that together with budgeting and financial measurements basics to show how the tools of finance work to evaluate the performance of a company.