Managing business finances is tough.
It’s a balancing act between providing your business with the tools they need to be successful, yet keeping a control on costs so that you don’t suddenly find yourself caught short in a tough period of trading. The key to managing business finances whether small, medium or large enterprise is planning ahead, meaning you’ll have something to aim for, and something that you and the team can answer to.
Having a Plan
Financial planning should be completed as part of the company strategy, and as part of the vision and growth plan. It might seem obvious, but the senior team of a small business should be able to look ahead and see what they want to achieve, and how they are going to get there. The finances will form part of this; perhaps including the size of team, the equipment, the office space, the insurance.
Unfortunately, it’s not enough to set a budget and hope for the best, it needs to be constantly monitored and managed as the business year progresses. Consistent review will help you understand and manage your business finances.
Perhaps income targets are not being met, so it’s key that the impact on costs are understood. Or perhaps spending has exceeded budget, so think about how this relates to your resource management, and real needs of the business. It’s also important to share the financials with the rest of the senior team. An open and honest sharing of these finances creates a far more successful understanding of them, which ultimately is good for business.
When it comes to which costs to pay, it goes without saying that there are costs which must be paid and are non-negotiable. These are things like (but not limited to) staff wages, HMRC, and business insurances. Don’t get caught out missing these. You can become liable for unnecessary fines, that just increase with time. No one wants to pay something for nothing.
Some costs seem like they might not be important but can do a lot for productivity of the team, such as milk for tea, working equipment, the odd social lunch, and of course soft toilet roll.
However, don’t pay for what you don’t need. Keep a constant tab on your direct debits and make sure the team are using the services and technology that are being paid for. If something is not being used, make sure you know your notice periods on contracts and give notice on time. You don’t want to be rolled into a new contract commitment because you forgot to cancel.
Always shop around and have your latest quotes to hand. Often providers will match their new customer offers and you can make savings. Telephone providers and utilities for example, often always make a cheaper offer than their renewal quotes, all it takes is a small bit of effort.
People often neglect to realise that money the business spends on things which might not be immediately necessary, could affect their own pocket. Educating those around you as to how the finances can impact everyone else, makes a huge difference.
Saving £500 per quarter, could be the equivalent of saving someone’s annual bonus. The team might want the latest equipment, the newest gadget, and sometimes claim they can’t work without it. Challenge them to show justification. This could lead to them making that challenge for themselves in the future, before approaching you for approval. Its ok to say no, but it’s equally ok to say yes, especially if the item in question can increase productivity, revenue and/or working culture.
Return on Investment
It is important to challenge the return of investment when reviewing, or indeed proposing, services used in the business. Remember, an advertisement for example should be making you more money than you are paying for it. An effective proposal could include the aim of the advertisement, the cost, the expected return, and a timeframe. Educate those around you to think of the process in the same way. It will challenge them to really think if it’s money worth spending, will give them a clear aim for the spend, and will give something concrete to come back to.
There is no definitive rule on what an ROI should be. A 5% increase is still an increase. What’s important here is that you have a way to measure which works for you and makes sound business sense.
When It's Going Well
Of course, we tend to think of strict financial management as vital when times are tight, as perhaps they are right now, however how do we manage our business finances when we are feeling more ‘flush’? In all honesty, it’s in the same way. Keep on top of your monthly outgoings, your contracts, your services. Keep planning your income, and most definitely keep the open dialogue with the rest of the team. They can help guide and give confidence as to whether the successes are set to continue.
It is also a chance to enjoy some quick wins… (payday bonuses are always welcome), but also to think strategically about the long term opportunities for growth and investment, perhaps a new area of business? It’s an amazing feeling being part of business development, encouraging new ideas, and rewarding the hard work of the rest of the team, simply because the business financials are in an up to date and well managed position.
The Support of a Finance Team
If you are running a small business, the support of your finance team is paramount to understanding where you are financially. They should support the senior team by providing up to date, accurate facts. Importantly, their support should not always come in the form of having a ‘just say yes’ attitude. The more your leadership team feels educated and confident in the work the finance team is doing, the easier it will be to keep everyone on track.
You should imagine your finance team as like the hand brake on a car. They slow the car down, keep it stable. And when it’s safe to move again, they allow you to go forward. You won’t always want to pull the hand brake but sometimes you have to. And knowing when to pull back and when to push forward is part of their job.
Growth Won't Come Without Risk
So be open, be flexible, be understanding, and be confident in the financial planning. Don’t be afraid of the risks you might need to take. Both ‘no’ and ‘yes’ risks. It is ok to challenge the new services being bought on board, its ok to give bad news, and it’s okay to take a chance on a new idea. As long as you have a sound plan for how to pay for it, what you want to see back and that you pull the plug if necessary. Remember, there is no one way to build a business but there is only one way for it to be successful; that it makes a profit.