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Managing your business finances…

We asked one of our partners “Off the cuff, come up with your quick-fire top-ten recommendations to any owner-managed business for managing their finances.”  Here are the results, in no particular order:-

  • Always create a detailed monthly forecast of profit, cash and balance sheet, before the start of each business year.  Produce monthly management accounts and monitor differences from forecast.
  • Monitor the cashflow forecast, and extend it as necessary, so that you always know what to expect at least three months ahead.  Replace the forecast figures with actual receipts and payments on at least a weekly basis.
  • Make sure you know your break-even sales level (inclusive of minimum desired profit).
  • Know where your next business is coming from before you finish the current sale / piece of work.  If you don’t, maybe you need to invest time in marketing and sales.
  • Track your average work-in-progress days (where applicable), debtor collection days, stock holding days, and supplier payment days.  Look for ways to “squeeze” the business by reducing the first three and (where safe and ethical!) extending the latter.
  • Monitor your gross margin percentage and think of ways to improve it.
  • Decide on the other most important key performance indicators for your business, generally, and review them regularly (these may be non-financial as well as financial).
  • Determine and diarise all time limits, statutory or otherwise, which may have a financial impact on the business.  Work them to maximise credit facilities, but to avoid interest, fines and penalties.
  • Cut waste (including non-productive time).  Ask the questions: “How is this expense / time contributing to the profitability of the business?  What is the opportunity cost of it?”
  • Document administrative systems and processes, and train up alternates, so that the business is less dependent on you personally, or anyone else individually.

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