The Finance of a business can be thought of as different activities that build, block-by-block to deliver profitable business growth, with fewer issues and a better focus on your business. These blocks split into Business Processes, Management accounts, Cashflow, Profitability analysis, KPI’s (Key performance Indicators), Budgets, Forecasting, for both Profit & Loss (P&L) and Cashflow; the more information the better decisions you will make.
The Business processes cover all the “day to day” business activities that need to be undertaken to run a business, e.g. – sales, purchases, people and for some businesses stock. These processes feed into your accounts package and drive the cash flow of the business.
Management Accounts pull together all the information created in the business processes and create a Profit & Loss account, which your accountant takes to prepare your tax returns, etc.
For a small business that can be all that’s needed.
For larger growing businesses, all the business processes become more complex and need more management; the business needs better, regular, Management Accounts (MA’s), including Profit & loss, Balance sheet and most importantly Cashflow Forecasts.
With good Business Processes and MA’s, detailed Profit Analysis and accurate Planning & Budgets can follow.
Without good information and proactive management, based on this information, a business will be “leaking” profit & cash flow – i.e. your ‘hard won sales’ £’s
Good forecasts will Identify any cash needed to Finance growth, e.g. working capital or equipment.
Who are the key people that you need to deliver your plan – how do you retain them?
Ultimately if you plan to sell, comprehensive Management Information makes your business worth more money,
Having all the building blocks in place allows the business to manage both internal (staff motivation) and external relationships in a professional manner, building confidence with Employees, Customers, Suppliers and most importantly External Funders, be they Bank, Equity Partners or Asset Funders
To summarise, your cashflow is like measuring the heart rate and blood pressure in your body; the profit and loss account and balance sheet shows how fit you are, forecasts and budgets are your plans in life and detailed Management accounts and KPI’s show you how you are meeting your personal targets.
Finance is an important part of your business, but there are many other important areas that need to be functioning well to really make your business work. Why not take our free 5-minute Business Diagnostic test and see how your business is performing today; you might be surprised!