Make 2020 your best year yet…with five financial routines to power-up growth

With 2020 now here, most business owners and directors are feeling reflective.  Looking back at 2019 performance and thinking about aims and aspirations for the future. 

A useful approach is often to look outside of the business and learn from others.  Think what can be done better or differently to build business and improve profitability.

To help this process we invited Oscar Fairchild associate Susan Jackson Cousin, a chartered accountant with over 30 years’ experience in business, to share some practical, flexible business advice to help owners and management teams take a pragmatic approach to 2020 planning.

 

Susan says: “It is interesting to look at the biggest business brands.  Those that started small and have grown into stable, profitable enterprises for ideas and inspiration. You will find several factors that are common to them; inspirational leadership, talented teams, a strong culture, clear vision, and great marketing. 

While all of these are important, I believe that there is one key common factor to running a successful business that tops the list; management of the numbers.”

 

Here are Susan’s top five financial routines to power-up growth through 2020…

1. Know your numbers

The financial numbers of your business are the facts of its performance.  They are the best indicator of how your business is doing, what generates profit, where money is lost and where best effort is spent.  Your numbers are key to decision making as without them you are guessing.

Ensure you have a financial system in place that is kept up to date and that delivers timely and accurate financial information.  Review your numbers on a regular basis and ensure you understand what they are telling you.  Know key statistics such as turnover/sales, gross and net profit margins and break-even point.  Learn and become familiar with these terms as they give you understanding and insight to your business that will support you in making the right decisions to achieve growth and increased profitability.

2. Have a Budget

Budgeting is a key routine for financial success in business.  In some organisations, budgeting for the next year can start six months before the start of that year. Larger corporations go as far as to build high-level three-year budgets, supported by a detailed budget for the immediate year ahead.  This shows the level of importance they attach to budgeting.

 

Not all businesses need to go to these lengths but having a budget for the coming year gives many benefits.  At a high level, it enables you to estimate your profit or level of investment in the year.  It facilitates up-front decision-making (deciding on what you are going to do in advance and how much it should cost you), it gives you a target against which you can measure performance on an on-going basis and, more importantly, take rectifying actions if things are not as expected.

 

3. Monitor performance by having the right indicators

Successful businesses do not rely purely on financial numbers.  While these are crucial as outlined above, there are other areas of a business that need to be monitored to support success.  These will vary depending on the nature of the business and will likely change over time depending on areas of concern and areas of focus.  Examples include; number of leads, conversion rates, return on advertising spend, staff turnover, productive hours per staff member or aged debtor analysis.  The list is endless and should be decided on by management through discovery of what is needed and what will be useful.  Too many can be distracting – think about what will really add value.  You can change them when priorities and focus change.

This whole suite of information is usually packaged as “performance reporting” or “a performance dashboard”.  It should dovetail with your plan and budget.

4. Cash is king

This heading is a truism if there ever was one.  Businesses generally fail not because of a lack of business but because of a lack of cash.  The lack of business causes a lack of cash which means the business cannot meet its cash demands.  Even a business with a high turnover can fail – it can run out of cash.

Having a cashflow forecast is the most important report a business can have.  A cashflow forecast estimates the cash in your business at any one time.  It schedules the estimated flow of funds (both in and out of the business) and aims to estimate the cash balance in the business on a weekly/monthly basis.

Only good can come from having a cashflow forecast.  It either outlines that there are no foreseeable concerns with respect to cash or it highlights potential problems in advance which enables you to take action to help prevent the problem.

Most accounting systems now facilitate the preparation of cashflow forecasts.  If a system does not, a spreadsheet version is enough.  Using past cashflow patterns are a great starting place for predicting cashflow and then, as knowledge grows, the models can be enhanced.  It is crucial that business owners/management understand the difference between cashflow and profit.

 

5. Take time to stand back and review

Meetings, meetings meetings…“board meetings”, “management meetings”, “executive team meetings”-  the big players all take management time out of the business and set aside day to day responsibilities to analyse and discuss current performance, looking at the complete suite of performance reports.

In reviewing and discussing the information provided, these meetings are a forum to explore the “why” and “what next”.  It is crucial to take time to pull away from the detail and look at your business as a whole.  To understand where it is at, compare performance to plan and understand variances from it (both positive and negative) and make decisions for the future.

Best practice is now for companies to have non-executive directors on their boards. A non-executive director (NED) is a board member without responsibilities for daily management or operations of the company or organisation.  NEDs are brought in for the experience and expertise they can offer and the fact that they can see things from a different angle and are not as influenced by the internal workings of the company.

Smaller business can do well from having someone independent to their business sit with them periodically (at least monthly) to discuss performance and issues and act as a sounding board for ideas.  Some companies choose this person based on a skillset they have that others in the company may lack, a common one being financial knowledge and skills.

 

 

Is it time your business had a Profit & Loss Masterplan?

Get to grips with project budgets, overheads and the true value in your business.  Precision management accounts and financial consultancy from our ACCA Chartered Certified Accountants.

 

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With thanks to Susan Jackson Cousin.

 

About Oscar Fairchild

Oscar Fairchild is an experienced accountancy and bookkeeping practice based in Billericay, Essex. We offer a comprehensive range of services including Self-Assessment, Annual Returns, VAT Returns, Credit Control, Payroll, Auto Enrolment Pensions, and Management Accounts. We work with SMEs, businesses in the construction sector, and a wide range of industries in between – including licensed London taxi drivers – across London, Essex, and Hertfordshire.

Contact us today to learn how our flexible, outsourced accountancy and bookkeeping services can provide reliable, expert support for your business.