Who benefits from this approach?

Entrepreneurs, business management analysts, planners, teachers, consultants and bankers can all benefit. This includes business journalists, future master craftsmen and high school graduates. Some may soon enter politics or be appointed to a company's supervisory board. Indeed, anyone involved in economics at schools, universities, training centres or in politics can reap the rewards.

Those who believe in 'standards' such as IFRS 18 are invited to reconsider their views on 'cash flow statement' and 'income statement' after reading this approach.

Simplifying for entrepreneurs' success

There is a long list of business management authors, particularly in English and French, who offer valuable advice to entrepreneurs and people setting up a new business. However, many fail to establish a connection with performance indicators.

There is a demand for early warning systems. In terms of liquidity, the base is always 'gross cash surplus' of the accountants and the target is 'self-financing capacity' of the analysts. The latter has to show the money generated by one's own efforts which is available for investment - after deposits and withdrawals and after repayments of debts. However, there is much confusion to be resolved in between the two cornerstones.

These writings contain a lot of criticism in order to make business management easier to teach and implement. Using the same terms in analysis and planning removes any barriers.

The time available for business management is limited. Entrepreneurs must focus on effective production methods, leadership of employees, environmental respect, pest and infection control, assurances, taxes, and their sector's public image. Additionally, entrepreneurs are facing increasing bureaucracy. In the future, there will probably be even less time available for business management. This is why entrepreneurs and supervisory boards are calling for few but meaningful business management terms.

Results from clear paths

The following pages provide a shortend overview of basics, indicators and examples from an entrepreneurial perspective.

1. Profitability, liquidity and stability form the core of business management. Even newcomers who leave after the first few lessons will benefit from being taught that at the beginning of a new course.

2. The accountant's job is to produce reliable results and meaningful interim reports. The analyst's job then is to convert the accountant's annual accounting statement into an economic one. This includes determining 'ordinary profit' and cash flows.

3. Liquidity is the central daily target. In principle, the liquidity assessment is the same for micro family businesses as it is for large, internationally active groups. Therefore, 'cash flow for self-financing of investments' (cash flow 3) should be used, with depreciation as a metric.

4. To judge profitability, the remuneration of labour and capital activities must be determined. In a family company, unpaid labour should be treated as paid work in order to calculate earnings per hour. Dividing profit into 'three activities' according to IFRS 18 does not benefit entrepreneurs or supervisory boards.

5. Entrepreneurs should be informed of the costs and benefits of their business divisions as soon as possible. This can be achieved using 'company allocation sheet'. But perhaps you could use the approach used by business newcomers, even in an existing company. With a double-column scheme, you can perform calculations according to different classifications simultaneously.

6. When planning, you can either compare different target developments or use a year-after-year planning approach. The latter is preferable if the company is experiencing financial difficulties. The same applies when new production objectives have been set.

7. If a company is experiencing serious financing issues, you need to calculate its short-term liabilities for the coming year. The presented table does not take up much time.

8. Digital computing replaced mental arithmetic in the 1960s. Previously, each column of numbers could only be handled using the same sign. It was mental maths that led to the invention of the 'debit and credit' convention — nothing else! Now, digital counting allows different signs within a column of numbers. This made a simplified table of double-entry bookkeeping possible. Accepting negative equity also avoids an illogical balance sheet.

It is preferable to have simple definitions that entrepreneurs, supervisory board members and politicians can easily grasp. If necessary, they can learn more precise definitions later on.

For more details, see the 'i Business Management - Basics, Indicators, Examples.PDF'. Please note that this 80-page file is not a complete textbook. For example, it omits financial mathematics and machinery and building cost calculations. But it offers new approaches beyond business administration.