Wednesday, November 4, 2009

Marketing and Finance.

Introduction to Financial Statements for Marketing.

How Basic Financial Statements Can Help Shape Your Marketing Plan.

Ron Thomas, Thomas Enterprises, Indianapolis.

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:

1.The Balance Sheet

2.The Income Statement

3.The Cash Flow Statement

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.

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 Income Statement.

The Income Statement is often called a Profit & Loss 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 Cash Flow Statement.

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.

Aim at the end is profitability so marketing definitely has a important relation with finance.



Rabbia Nasir Amin said...

that's a great post ahmad !! damn useful !

Haider said...

Who says doesn't have an inventory........ sleeping in the managerial class?

M. Umer Toor said...

When you go out to customers, big customers, for example, use of these financial statements is only rudimental. They come to know whether we are a sound party or not, whether we can fulfill the financial obligations or not. this is about the repute, plus, the technological base is also assessed on its basis.

Most effective is the name and repute of the sponsors of the company.

I have following questions:

1. What are the implications for a start-up who are not getting Venture Capital as most Pakistani companies do? They don't have any fat balance sheets, etc., etc?

2. How would web-based comapnies market, even if they've millions to spend on marketing they may not be using financial statments as seen in most cases, esp. for web-based companies who do not inventories like, e.g., Mozilla, or Pay-Pal, etc. - see "Founders at Work" for the rest of IT, web-based start-ups?

M. Umer Toor said...

@ Hadier, my questions are yet not answered...

Rana Aqeel Akhtar said...

Hadier please answer it...