Marketing and Finance
Introduction to Financial Statements for Marketing
Often marketing professionals are criticized since they are viewed as creative and innovative people that tend to spend the company's money without worrying about how effectively or efficiently it is being spent.
You must monitor the efficiency and effectiveness of your marketing activities, as well as other important business functions such as production and the quality of products or services. However since the purpose of a business is to earn a profit, finances had better be one of your marketing foundations.
There are some key financial tools that are essential to this monitoring task. Taken together they provide an overview of the firm's health and future prospects:
It may not be readily apparent to you how financial statements are relevant from a marketing perspective. You may ask - What can these financial statements tell me about my Marketing Plan? First, let me outline each briefly and then elaborate on why they will be so important to you and your future success.
The Balance Sheet has two main purposes; (1) Listing the assets of your company and (2) Listing the liabilities of your company. Some examples of assets that might appear in a balance sheet are cash on hand, accounts receivable (amounts owed to your firm), furniture, company vehicles, etc. Some examples of liabilities that might appear in a balance sheet are accounts payable (amounts your firm owes to others), loan amounts payable within a year, your equity investments made, etc. In a typical start-up firm, owners' investments may be temporarily shoring up the lack of sufficient accounts receivable.
The Profit and Loss Statement is also called an Income Statement. As you might imagine, the income statement provides some hints about how efficient the young firm is being run. Typical components found in an income statement are net sales, the costs of goods sold, the costs of inventory if applicable, and regular expenses such as office rent, payroll, supplies, etc. When both positive and negative finances are displayed on an income statement, key components contributing to profit or loss for the period can be identified.
The components of an income statement can be turned into a Cash Flow Statement. The main work of a Cash Flow Statement occurs in the first column. It starts with a snapshot of your beginning cash balance. Next, it itemizes the amount of each source of income on a line of its own. The beginning cash balance plus the sum total of all income sources is totaled for your Available Cash Balance.
Next, simply make a grand total of all outgoing cash. Now, after subtracting the Total Cash Out Flows from the Available Cash Balance you will arrive at the Ending Cash Balance for the first month. To see how the cash "flows", simply move the Ending Cash Balance to the top of the next months' column and enter the figure as Beginning Cash Balance. Complete these steps, entering in the appropriate dollar amounts across from each source of income and expense and you will be in a position to monitor your cash flow.
What can a Balance Sheet, Income Statement and Cash Flow Statement tell you about your Marketing Plan? Perhaps your original owners' equity is too committed to capital to launch an expansive marketing campaign. Past results may show advertising had to be scaled back due to insufficient inventory. You may not have funds to sustain a long term marketing strategy.
In summary, a company's financial statement tells what has occurred and provides data to aid you in making informed projections for the future. Monitoring them may lead to the appropriate revisions in your marketing strategy.