Are you keeping an eye on the critical financial events in your business? Are finances just something left to the beancounters?
Over the years I have seen hundreds of business owners (and this includes me!) make really poor financial decisions simply because they did not have their finger on the pulse of the financial position of the business. One of the key strategic areas of all businesses is that of finance and that is why it is so important to have a sound structure around financial management.
In a previous life as a chartered accountant, my work predominately focused on the mop up at the end of the year of financial decisions made (or not made) during the year. What was clear was that not enough time and effort went into this vitally important area of the business either by the business owner or the accountant. So what are the things that make up “Financial Management”? I’d put them under 5 main headings:
- Financial Reporting
- Budgetary and Cashflow Procedures
- Revenue Management
- Cost Control
- Working Capital Management
Okay, that all looks pretty self explanatory and probably all business owners incidently cover off on this stuff most of the time. This might be true but in my travels I have seen some pretty lousy financial management. I was recently called in to have an initial discussion with a potential client who was not travelling as well as he had in the past and who really needed some help in turning the business around. This was not a strategy session or business diagnostic so I was not delving into marketing, systems or people strategy at this stage. I was wanting to get a feel for what the numbers could tell me from a quick overview. Unfortunately what I found was that the only financial reports available were those that had been prepared by the accountant for last year’s tax returns, no budget or cashflow forecast, no adequate job profitability analysis, a cost structure too high for the current level of turnover and now a business that was running out of cash! Absolute disaster.
So while this and many other businesses trade profitabily over an extended period of time, owners cannot ignore the fundamentals of financial management. It’s really important to keep a very close eye your profit and loss statement, debtors, creditors, cash position, sales performance and results against budget.
So what are the 4 things I’d do to set some structure around managing finance:
- Devise a Monthly Reporting System
- Prepare an Annual Budget and Cashflow Plan
- Identify Key Financial Performance Indicators
- Establish a Monthly Advisory Board
Once again this list of my 4 tips looks easy but there is a little bit of work in putting it together. The key is to get something done don’t get it perfect. The key to the future success of your business relies on making such improvements and being diligent in all aspects of management.
I hope that you have found this helpful and look forward to sending you something next week from sunny Noosa! In the meantime if you would like some help please feel free to contact me or test the health of your business by doing our FREE GPS Diagnostic which you will find on the top right of this page. It doesn’t take long and it will give you some great insights.
