Do you know the financial health of your business?

Let’s talk money. Yes, I know, it’s awkward, uncomfortable and, for many business owners, uncertain. I’m not just talking about struggling businesses, either; even successful companies aren’t always clear on their exact numbers. It isn’t good.

It is probably the biggest stumbling block I experience when speaking with business owners. For some, it may be a case of not having enough time; for others, they don’t understand the importance, and for others, they simply don’t understand.

Through no fault of their own, they have just been too busy making the business work, focused elsewhere on customers, employees and getting sales. BUT, at some point, the situation needs to be addressed.

The great thing is when you embrace your financials, you’ll begin to see and feel your business potential with clarity and positivity. Despite the fact, if the numbers are black or red, they provide opportunities. Andrew Grant from Aspire Construction and Property Ltd is one of those businesses,

We increased business growth by 83% and significantly improved cash flow management.

Financial Management Post Pandemic

I can’t emphasise the importance of getting to grips with your finances enough; aside from sleeping better at night and improving your mental health, clarity on your actual situation is essential to sustain the business during difficult times and grow in the future.

Whether you experienced boom or bust in 2020, you may have seen your strategy and plans fall by the wayside while firefighting took precedence, and that’s ok. But now

It’s time to review, recover and rebuild.

Let’s think about it in terms of business planning: You’ve mapped out your ideas, and you’d like to rebuild your business and increase profits over the next two years.

Your business plan details your strategy: WHAT you need to do and WHEN in terms of hiring, operations, systems, marketing etc. But, where does the money come from?

Your financials are essential to your business strategy as they will detail HOW you can do it.

  • Do we need to borrow?
  • Are we in a position to borrow?
  • Should we find investors?
  • Will investors be interested?
  • Can we demonstrate our capabilities?
  • How soon will we see ROI?
  • When will we turn a profit?

Without answers to these key questions, your visions of rebuilding and growth may be over before they begin.

The Tipping Point

Let’s put the pandemic to one side just for a moment. There will always be challenges to overcome, big or small, but it’s your ability to manage them that makes the difference

Over the years, I’ve seen many businesses at this stage: The tipping point of success or failure.

Every business gets to this point sooner or later: choosing to move forwards or remain static, BUT always with one defining factor of success: In-depth financial understanding and planning.

At this juncture, you must align your goals, plans, and finances to realise your capabilities as a business. My clients’ most significant results are not always by making huge shifts in alignment but often realised through the smaller, incremental changes they have made to their cash flow management, operational procedures, and renegotiating terms with suppliers and customers.

It is by focusing on the sum of all the small parts which generate the greatest results.

The Essentials

Now it’s time to address the nitty gritty of the task: The devil is in the smallest detail!

So, let’s dive right in and go through your essential, MUST HAVE documents of money management for business growth.

1. Cashflow forecast.

Probably the biggest reason for a failing business, I cannot emphasise enough the importance of understanding and prioritising cash flow management in your business. Whether you’re a freelancer, micro or corporate, you will never grow or even survive without properly understanding the fundamentals.

Your cash flow forecast is the most important document you will have. Even the most profitable companies struggle with cash flow, so forecasting the flow of money in and out of your business at any given time is essential to stay afloat and plan for future growth.

Your forecast will provide an in-depth understanding of what monies you have in a specific period, allowing you to make contingencies for leaner weeks or months and create opportunities for spending at other times.

Another significant benefit is that it provides you with deeper knowledge and insight into your business, helping you to build stronger, trusted relationships with your bank, creditors and customers.

2. Profit and Loss Statement

Again, another essential tool in your armoury.

Simply put, your P&L document details your total income minus your total outgoings to establish how much profit you have made. Unlike a balance sheet which provides a snapshot in time, your P&L gives you a lot more information over a period of time, such as a quarter, month or year.

You can write it down or use an online resource, BUT it’s a requirement by law to keep one, so start using one asap.

Probably the biggest benefit is that you can plan, mitigate risks to your business’s stability or take advantage of future opportunities. It provides leverage if you want funding and proves that your business is financially viable to afford a loan or investment.

For example, when the lockdown was announced, businesses with an accurate P&L understood how their business could be impacted financially and provided the opportunity to take decisive action on furlough and redundancies.

Other businesses whose services and products increased demand could quickly understand if they could scale up and take advantage of the opportunity.

The Backbone of your Business

These two ‘working’ documents need to be closely monitored, adjusted and discussed regularly,  becoming part of your weekly or even daily routine depending on your financial situation. They form the backbone of your business.

Whether you’re considering selling the business, franchising, growing, merging or closing down, you need to know your numbers.