As the business owner you are not expected to be the finance expert. However, you must understand your financials and your cash flow.
Many business owners who have run their own company for many years are often too proud to admit they do not fully understand accounts and finance.
Do not be one of them!
Bring in people to help you who understand accounts and finance either full-time, part-time or on an outsourced basis. It is possible to outsource all parts of the finance function and the requirements will vary depending on your company size, business sector and stage of development.
Then, ask lots of questions. Understand what the numbers mean. More importantly, understand the key numbers for YOUR business.
It is not difficult, and you do not need to be a rocket scientist to understand.
It is important to take financial management seriously and not to avoid personal responsibility. It is your business.
We believe in real time historic information and up-to-date integrated forecasts. Without both, business owners and management teams are running blind.
How can effective and appropriate decisions be made without knowing the full financial picture?
Excellent financial management is about understanding:
- where you are
- where you have been
- where you are going
This is done by having:
- current management accounts and information, plus an up-to-date bank position – “where you are”
- historic management accounts and full year final accounts – “where you have been”
- forecasts comprising monthly profit and loss, balance sheet and cash flow as well as a weekly rolling cash flow forecast – “where you are going”
These are your map and dashboard. Think of driving your car…if you do not have the map and the dashboard then you will be lost and are unlikely to reach your targeted destination – and that is assuming you know where you want to go as many businesses do not have a strategic plan either.
Ensuring the company has timely historic financial information, well thought through strategic forecasts and a complete understanding of the cash position going forward is your very own dashboard which gives you the visibility and the route map required for the journey. The cash is the fuel to take you on the journey.
Do not meander aimlessly and without a plan.
So, what does that mean and what does that look like?
Good financial management means having all financial matters up to date with related reports, statistics, information, and Key Performance Indicators (KPIs). This comprises historic information, forecast information and usually an online/cloud accounting system.
Many years ago, there was little choice but to record every transaction manually. Now we can take advantage of advancements in technology whether storing spreadsheets in the cloud for easy access for multiple people, using software add-ins that process invoices and linking that with cloud accounting software.
We cannot recommend having an online software solution highly enough. It saves time, is more accurate and if managed daily, the company can have real-time financial information.
In a study by UK-based Financial Director, 34% of finance leaders stated that their team relied on manual expense or invoice processes even though they were “hugely time consuming and archaic.”
Deloitte’s 2020 report “Accelerate Digitalisation” found that “digital processes are key to building resilience in the face of disastrous world events, such as the coronavirus pandemic.” It encouraged companies to rethink and accelerate their digitisation strategy.
We agree – do it – go digital!
This article was first published on Daily Business (https://dailybusinessgroup.co.uk/) on 10 March 2021.