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If you were to ask budding founders what their business objectives were in their corporate infancy, business growth would feature heavily.
So why do so many get stuck in some kind of holding pattern, unable to grow? In my experience, the main culprit is lack of financial planning and reporting. 4 years ago, when I made the switch from being an FD in the larger corporate world to a Finance Director Consultant to SMEs, I was shocked at the lack of financial information many businesses arm themselves with. The scenario of a CEO waking up at 4AM worrying about losing the house, due to business financial problems, is both very familiar, and absolutely no joke. Do not make the mistake of running your business financially blind. Most businesses do not need a full-time Finance Director on their payroll by the way. And many cannot afford it. But there is another way. One of the reasons I started WrightCFO in the first place was to provide SMEs with part-time FD support. You can buy this support in bite-size chunks. Turn the tap on when you need more support and turn it down when it’s a time for a break. It works brilliantly, and gives SMEs an opportunity to receive the same financial expertise as the big guys, but instead, their support is imbedded with flexibility and affordability.
Sophie Wright – Portfolio Finance Director & Founder of WrightCFO Ltd.
So what should a good Finance Director be providing you with to alleviate this financial blindness

Meaningful Budget

Firstly, your FD should produce a budget, which is meaningful. Did you pluck a revenue figure from mid-air? Or is there a list of targeted clients this is going to come from? The more detail there is driving your budget, the better. A new business target of £500K is utterly useless if no one knows where it’s going to come from.

Accountability Secondly, your budget should have accountability built into it. Have your managers be accountable for a section of the budget, which they are responsible for. Have your Administrator be accountable for the stationery budget if they are the ones ordering it. If you have a team responsible for overseas sales, make sure they are on board with the budgeted revenue for this stream and make them accountable for meeting it.
Monitoring The budget is not an exercise, which should be done in January and then forgotten about the rest of the year; it should be monitored closely. Compare monthly P&L figures to your monthly budgeted figures and see how you’re doing. I have seen many businesses do this, but then not take action if they are not achieving the results they were expecting. It needs to be discussed and brought out into the open, with those accountable, so a plan of action can be made.

Commentary and Analysis

Your FD should be including commentary with your monthly P&L against budget. What wins and losses were there? What did you learn as a business? If you lost a client, why did that happen? What can we do to make sure other clients don’t go to a competitor? Your FD should be identifying where the risks and opportunities lie. For example, I once had a client, which was a small group of companies. There was one large customer, which each business unit happened to share. I had heard the client was not very happy with the work from one of the business units and was threatening to leave. I highlighted that as a group this client was responsible for 60% of the group’s business. If they left, it would affect the whole group and showed them what the P&L would look like if this client left. The Chairman immediately booked a meeting with the client the next day and restored the client relationship.

Another useful analysis is that of margins.

Do you know which of your products or services are profitable and which are not? If you know, you can then take actions such as raise prices, renegotiate with suppliers, or really push sales of high margin products.

These types of analysis, such as identifying key risks and opportunities, is an essential part of financial reporting, which you should expect on a monthly basis.

If you receive quality reporting as outlined above, you have better control of your business. This gives you an advantage over your competitors and increases your chances of success and growth.

Sophie Wright –
Portfolio Finance Director & Founder of WrightCFO Ltd.

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