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Profit - money - balance: how everything is connected in the business model

Profit - money - balance: how everything is connected in the business model

The development of any business plan is always based on financial and economic model.

It doesn't matter if you develop it yourself or use a ready-made software product. It is important to understand the system of interaction of its main key parameters, on the basis of which a decision on the effectiveness of the business economy is subsequently made.

Such indicators include - profitmoney and the balance sheet of the organization. That's it! And the rest, so to speak, is for the bureaucrats to report.

None of these indicators individually has any economic value for objective decision-making in the management of the company.

And this is an axiom!

If someone, for example, makes a decision based only on profit (like the calculation was calculated), without assessing its impact on money and balance, then this someone is just pursuing his personal interests in this, not the company.

Because profit is not always money, and money is not always today, but balance (business value) It's forever.

The entire calculation within the framework of the business plan has a kind of logical chain of sequential actions.

At the beginning, profit is calculated, then its impact on money is estimated, and money on the balance sheet. And if this process allows you to exaggerate the book value of a business at the expense of its liquid part (money or what is really in high demand), then the derivative of what is happening has the right to live.

this is important

For example. The company is on the verge of making a decision on the implementation of a certain event. She evaluates the result of selling her products from this with a plus. I.e. Revenue = Costs = Profit. Further, profit, as a fundamental element of operating activities in cash flow for the same analyzed period, is compared with an increase in working capital (at the expense of which it was formed), tax movement, investment and financial activities.

And if, in all this "hodgepodge" according to the total accumulated balance cash flow of the company, a plus is emerging (there can be no minus, as we know - the balance of 51 accounts cannot be negative), without increasing debt obligations (loans, etc.), then the book value of the business will grow at the expense of equity, that is, money.

And just as importantly, how or into what this net cash will be reinvested in the future, and not just hang out in cash accounts. I.e., in which assets, with what promising price in the near future.

But profit may not always have such an effect if, for example, it is formed by increasing turnover, which will subsequently be written off for losses (accounts receivable, illiquids, etc.). That is, money is spent today, and a negative result from their work is obtained later.

Or vice versa. Sometimes you can sacrifice profits by reducing the volume of working capital, in order for the balance sheet to be better economically tomorrow, and the company to continue its activities.

All these processes at business assessment, built on 3 key synthetic indicators of the economy - profit, money The balance sheet must algorithmically correctly and correctly display the real picture of the company's economy based on the specified initial data, in order to make any management decision wisely in the future.

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