A quick re-cap on last week, I hope you’re now checking your debtors and creditors every week, and you’ve started putting your VAT and corporation tax away in a savings account.
During my career I’ve seen too many good businesses fail or constantly struggle, so I’ve spent the last 20 years studying and honing the perfect management information to keep a business safe and in control. Businesses that do this stuff don’t have financial problems. They can access bank funding when they need it, and have far better financial results and less stress than companies that wing it.
So, I’d like to take your through the steps you’ll need to take control of your finances.
Bomb-proof book keeping
You’ve got to have a book keeper who’s up to the job. Book keeping is often seen as an admin job; actually it’s a skilled area that needs proper attention from someone who’s experienced and qualified to do it properly.
If your book keeping is accurate and up to date, then you can get at the valuable information you need to know what’s going on in your business. If not, then it’s mostly down to guesswork.
Here’s a checklist of things to look out for if you’re not sure about your book keeper.
Black holes – make sure you don’t have these on your balance sheet
Yes, this is accountant’s stuff, which is why you need finance staff who know what they’re doing. Basically if you don’t know your main reconciliations are being done, then you could easily have a black hole building up. Black holes are usually caused by inexperienced book keepers, and they can potentially take your business down.
Unless your balance sheet is reconciled, you can’t be sure that your Profit & Loss report is correct.
1) A weekly flash report
This is one of the most simple and powerful reports you can put into your business and has made instant and huge changes to every business I’ve ever put this into.
It gives you a weekly snapshot of the most important things in your business and tells you how the month is looking, and also lets you see 3 months ahead. If you can see that far, you’ve got control of your business.
It’s also great for making sure your book keeping is kept up to date with structure and routine – the keys to financial control.
I’ll be talking about the flash report in more detail next week, but if you’d like to see what it looks like, drop me an email (link sends e-mail) and I’ll send you a copy.
2) A weekly rolling 13 week cashflow forecast
One of the most important things you can have in your business. If you can always see that cashflow is ok for the next 3 months, you can get on with running the business. Any cashflow problems that appear on the 3 month horizon can then be dealt with in plenty of time. Regular readers will know that cash and profit aren’t the same thing, and if your business is growing then cash could become a real issue if you don’t keep a close eye on it. Companies that forecast their cashflow weekly rarely have cashflow problems.
3) Monthly Management Accounts
You need these every month without fail, no later than 2 weeks after month end.
As a minimum your management information needs to tell you:
- Your profit and loss against plan, so you can see instantly what needs to improve.
- What your forecast profit and loss for the year is.
- Your balance sheet.
- As your information evolves you can add all sorts of really useful stuff like customer analysis, graphs, KPI’s that give you a deeper insight into what’s going on.
Your numbers have to have context – they only mean something if they’re compared to what you expected, ie your budget.
Understanding is everything
Obvious I know, but as the business owner you really do need to understand your finances. I get that it’s the probably the scariest part of business for most people, but when you strip away the jargon and understand that most of it is just addition and subtraction, routine and discipline, then it’s much easier to get comfortable with the numbers. And when you understand them, you can change them.
So, that was quite a long blog; if you made it all the way though then thank you for taking the time, and hopefully you found something useful in there for your business.
Next week I’ll go through the flash report in more detail, as this report can make an instant and massive change to your business.