As well as the more structured sectors, such as industrial or product, also the sports sector, such as fitness centres, spas, beauty centres or sports centres in general, presupposes an excellent knowledge of the financial performance of your company. This allows the entrepreneur to knowingly answer questions such as:"In X months' time, how much money will I have on my current account?";"Do I need to negotiate with my bank a subsidised interest rate for overdraft?"; "In periods of increased liquidity, how much do I have to set aside to cover current expenses in periods of low seasonality?”
They do not have the slightest impact from a financial point of view: this item represents a "cost" but not an "outflow of money". They are part of so-called "non-monetary income components". Let's assume that in year 0 I purchased a new personal computer of the latest generation for the graphic designer who takes care of the communication of my sports centre. This means that I have had a monetary outflow (financial impact). The PC is, however, a durable good and, as such, is assumed to have a life of several years. From an economic point of view, I will not charge 100% of the cost in year 0, but only a part of it (normally 20%). The remaining value will be allocated in subsequent years at the same rate. The impact on profit will therefore be reduced but constant in the following years (normally 5 total years).
There are also other costs that normally (except for any accruals or deferrals) are treated in the same way from an economic and financial point of view. Take, for example, travel expenses (fuel, motorway, hotel) or rents, salaries of employees and collaborators, cleaning and maintenance costs.
Finally, there are accounting movements that do not produce financial manifestation, such as the free share capital increase. In other words, it refers to accounting increases in share capital without any new income from fresh financial resources, but obtained as a different allocation of the reserves already recorded. This has no financial effect.
The final result of this model (total cash flow) allows me to know the change in liquidity (available cash on the company current account) compared to the previous year. This means that the Cash Flow Statement should be developed over a five-year time horizon. Or at least three years.
Attention however: the report is not a "static document": once it has been produced it will almost certainly be subject to changes over time depending on both the real trend of my business and exogenous events (opening/closing a competitor, particularly hot winter, very rainy summer, etc.). What is important is that we do not need to overturn this document. In that case, it would mean making serious errors in the forecasts which could jeopardise the soundness of my business.
- Better and more informed business management
- Evidence of accurate information on cash inflows and outflows in the predefined period
- Punctuality in the payment of suppliers
- A management of periods characterized by low liquidity (E.g: July and August for fitness centres)
- Providing a clear picture of financing and investment activities
- Increased credibility by banks and investors
It is clear that it is important to analyse the finances of one's own sports centre with a serious, scrupulous and consistent approach over time. In doing so, I will be able to manage my finances correctly, thus recognising a deviation and understanding how to intervene.
- economic: through self-financing or through the resources generated by the company's economic activity quantifiable in the sum of operating profit and non-financial costs/revenues;
- operational: through the management of payment terms for trade payables and receivables. In the case of debts, it is intended to agree with the other party on a new payment deadline, not to delay these timeframes without an agreement;
- strategic: through investment choices in durable goods adapted to one's own business model and the procurement (and reimbursement) of internal and external sources of financing.
- the ability to generate positive future cash flows
- the economic and financial aspects of investment and financing transactions
- ability to meet maturing commitments and payment of dividends
- the causes of the differences between income for the period and cash flow and payments
Previously knowing the financial potential of a business in the long term is fundamental for the success of its business.