Tying the Financials Together - Business Management for Financial Advisers

As you will see from the discussion on financial analysis in the next chapter, the three financial statements are linked. Adding assets or liabilities directly affects cash flow; profits or losses directly affect the balance sheet. It is possible to have cash and no profits, and it is possible to have profits and no cash.

The relationship between the two depends on whether your business is growing or shrinking and whether you are paying attention to the fundamentals of financial management when you evaluate your success.

There are times when it is acceptable to have the relationship between profits and cash out of whack, as long as the condition is not chronic. But in the long term, the goal should be to achieve harmony in your financial statements. That harmony is measured by:

  • A healthy balance sheet
  • Strong cash flow
  • Increasing profits
  • Fair return to the owner

As you begin to apply discipline to the financial management of your practice, you will also begin to see how such discipline affects your ability to provide the ultimate client-service experience. A growing, profitable enterprise has the financial resources to reinvest in the knowledge, technology, and tools that will make it easier for clients to do business with it. Furthermore, having a financially successful enterprise will help ensure that your focus as an adviser is on your work and not on your own financial needs.


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