Without a financial map your business will struggle for direction, says CRAIG ALEXANDER RATTRAY

“If you don’t know where you are going, any road will take you there.”

A phrase attributed to Lewis Carroll.  It didn’t actually appear that way in the Alice in Wonderland Books, although that sentiment was precisely what the discussion between Alice and the Cat was about. It is a bit like running a business.

If you don’t have a plan or a forecast, you are unlikely to know where you are going, and will be unable to measure performance or success accurately.

It may also mean you end up in a place that you do not want to be.

At the start of lockdown last year, many companies were worried about cash and frantically contacted their bank to secure additional funding under the recently introduced Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS).

Despite being Government backed, the lender still had to follow proper procedure in the application process.  I like to think of the process as quite simply:

  • Where have you been – historical accounts
  • Where are you now – management accounts
  • Where are you going – forecasts

Those who had this information sailed through the process and secured funding quickly.  For those without, it took longer.

It reminded me of a client from around ten years ago.

The bank introduced me to the directors of a company with significant growth potential.

The business had shown strong growth over several years, but this had stalled because of a lack of funding due to a lack of confidence from the bank and other funders.

This was a result of poor financial management and no effective strategy or plan.  The lack of growth finance meant that the company could not take advantage of the numerous opportunities from existing customers and new potential customers, and there were signs of over-trading.

I performed an “Initial Review” (a “tyre kicking” exercise) over a few days and identified several key areas that required improvement.  I was invited by the shareholders to become part-time Finance Director to implement the changes.

As part of the role, I worked closely with the bank and other potential funders to identify the changes required to improve their confidence and encourage them to lend.

I also worked closely with the operational team to identify the information required to run the business from their perspective and created an operational plan.

We improved the reporting culture within the company internally and externally, and aligned the operational and financial plans.  They were our map to success.

The revised financial reports that the bank received monthly provided them with the key information they required, and they continued to increase facilities to finance growth.

The budget for the current financial year was updated to reflect the changes and the opportunities that the company was now able to deliver.

‘Ensure your company has a complete understanding of the cash position going forward’

Over the course of the next six months, we engaged with new funders and the existing funders increased facilities.  We increased asset finance facilities from £20m to £70m and replaced the £1m overdraft with a Confidential Invoice Discounting facility of £7m.

The company delivered strong performance ahead of budget and grew from £23m to £35m, more than doubling the EBITDA percentage.  We also filed audited accounts six weeks after year end with no changes.

This is one of many examples of how company performance can be driven by focusing on doing the right things financially, and using the information to make decisions and as a plan, or map.

I am a great believer in real time historic information and up-to-date integrated forecasts, as well as a weekly rolling cash forecast.

Without these, business owners and management teams are running blind and with no map.

Ensuring the company has timeous historic financial information, well thought through strategic forecasts and a complete understanding of the cash position going forward is the map for your journey.

Don’t be like Alice.

Care about where you are going and ensure you have the right information – your map, to take you to the right successful destination.


This article was first published on Daily Business (https://dailybusinessgroup.co.uk/) on 15 February 2021.