The vast majority of business owners and directors are not accountants and for some, business finances are a challenge.
In most cases your real expertise lies at the heart of your business – making stuff, designing things, training people, selling goods, providing services. After all, isn’t that what you are really good at and why you started your business in the first place?
Yet you run your business for profit as well, don’t you? So, you probably want:
- more (or different) sales
- new customers
- better profit margins
- lower costs
- regular cash flow
- competitive products and services
This blog looks at what you as an owner or director can do to improve your business finances and provides you with my 5 Top Tips to help you change your business finances now.
What is the big problem with Business Finances?
In my previous blog Small Business and Finance – an uneasy relationship? I looked at why many small business owners struggle with their finances.
Even those who are paying an accountant or bookkeeper still don’t know exactly what they need to do to improve their finances. The one consistent message that I have been receiving from new business clients recently is that most do not know where to start.
So, they put it off.
Some even bury their heads and hope it all goes away or gets better by itself.
As you are still reading this, then you are not avoiding the potential finance issues in your business and so read on to see how my Top 5 Tips can help you to improve your business finances.
So, let’s get started.
1. Business Finances – Your Bookkeeping
The most common issue I have found with new business clients is that their bookkeeping system is not fit for purpose:
- Many still operate paper systems or some type of spreadsheet that they designed themselves
- Those that do have a formal bookkeeping system aren’t using it properly – they are often only recording sales and some purchases and the rest is partly paper and partly spreadsheets
- The records usually get bundled up and handed to their accountant at the end of the year to complete their tax returns
With free versions of cloud based systems out there, quality branded systems starting from as little as £6 per month and desktop systems from £20 one-off, then cost is not a prohibitive factor.
Tip 1: Take a good look at your bookkeeping system and improve it or upgrade it to one that meets your business finance needs for record keeping, meaningful business decisions and for tax purposes.
P.S. Run your preferred choice past your accountant before making the move.
2. Business Finances – Your Accountant
As a Chartered Management Accountant, I am often surprised by the number of business owners/directors I meet who employ an external accountant (or bookkeeper). Yet they have a range of bookkeeping problems that the accountant is either unaware of or is ignoring.
In some recent engagements, I have discovered that the business owner operates their own (weak) bookkeeping system. Their accountant then transfers all their data to another system entirely, to produce accounts at the year end. The first time the owner knows how well his/her business has performed is with their accountant 6 – 9 months after the year has finished.
Too late to do anything about it then.
Tip 2: Review the way you work with your accountant and make sure that that you are getting value for money from them in terms of quality financial support and expertise when you need it.
3. Business Finances – Your Profit and Cash Flow
“Turnover is vanity, profit is sanity and cash is reality”
Nobody knows the definitive origin of the above quote but it is as true today as it was when it was first used. As we all know, profits cannot pay the bills or the wages until it is actually turned into cash or reaches your bank account.
Cash and profit are affected by many aspects of your business. When was the last time you had a really close look at your business model and asked yourself:
- Do I charge enough for my products/services?
- Are my profit margins and pricing policies as good as they should be?
- Are my business sales and products/services mix what I want them to be?
- Do my customers pay me on time?
- Am I on top of my stock, production processes or projects?
- Is my cash flow regular enough and do I have strong enough reserves?
- Do I make the profits that justify the time I spend in my business?
- Are my banking arrangements satisfactory?
- Do I get regular challenge from a coach/mentor/non-exec director that keeps me on my toes?
Not all of these questions will be relevant for your business. Indeed, there may be others that occur to you in your own particular circumstances, however you need to ask yourself the right questions about your business.
Tip 3: Step back, identify the top sales/profit/cash issues in your business and take some practical actions to critically address them. Ideally engage an independent professional who will challenge your assumptions, make suggestions and keep you and your business moving forward.
4. Business Finances – Your Banking Arrangements
As an ex-banker, issues in this area of business finance still surprise me when I meet with owners/directors.
If your business borrows money, are you clear about your borrowing terms, interest rate, fees charged or security held?
Two recent retail business owners that I met were not aware of the significantly higher costs for handling cash from customers. They didn’t know that some simple front line changes with more payments by debit cards or online can reduce bank transaction fees by up to 50%.
Banking is a critical element of a small business financial model and so it should not be ignored.
Tip 4: Review your last bank ‘lending facility’ letter (if relevant) and check your arrangements are what you agreed for the borrowing. Analyse your last 24 months banking transaction fees to make sure you are not paying avoidable bank charges.
5. Business Finances – Your Business Strategy/Future Plans
Like many business owners/directors you can spend too much time ‘in’ your business, and not enough time ‘on’ your business.
This is a difficult one.
Firefighting, getting paid, making sales, dealing with issues are all urgent.
Reviewing your business performance, checking trends, making plans and thinking about future strategy are all important. (Note: Look out for one of my next articles, “Do you really need a Business Plan?” on how to introduce simple business planning to your business).
So, the trade-off is for you to differentiate between urgent (and sometimes important) business issues and important (yet rarely urgent) business issues.
Few business owners that I meet practise this and it is often linked to other issues detailed earlier in this article:
- A weak bookkeeping system means owners/directors don’t have access to the management information they need to manage their business properly
- An ineffective accountant may not bring enough challenge to the owners/directors to support timely, high quality financial oversight
- A lack of structure around pricing and collecting payments may mean too much effort on time consuming operational tasks
Tip 5: Set aside at least one hour every month to review how your business has performed in the last month/quarter and year to date. Then compare it to the same period last year, so you can identify trends to be investigated, encouraged or stopped – and use it to make future plans.
P.S. Ideally, complete this review with an independent professional who will provide you with the challenge to help you make the right decisions.
Business Finances – Conclusions
Running a business is not easy. If it was, then everyone would be doing it!
Make a start with even one of these Top 5 Tips every month and you will improve your business. Understand the critical role that business finance plays in the success and growth of your business.
If you are a business adviser, then share these tips with your client to help them improve their business.
Contact Tony for more information on:
- how you can implement any or all of these top tips
- a free Business Financial Health Check
- our 1-1 mentoring packages
- bespoke financial training workshops
- our non-executive director and interim executive services
- a recently updated online charity Governance Improvement Tool
Phone me: +44 7828631021 or
Email me: email@example.com for more details
Admor Business Solutions
Tony is a Member in Practice of the Chartered Institute of Management Accountants, a Premium Adviser with Enterprise NI and a registered Finance Mentor on four council-led SME support programmes