What strategic financial information do you need to grow your business? By strategic I mean over and above the standard set of information that your book keeper or finance manager can provide.
Well, here’s a short list I’ve come up with:
You wouldn’t start a journey without knowing your destination and having some idea of your route so why would you start a business without a plan? Think of a plan as a way of mapping out how you want your business to develop and grow in the future. It’s not just for you though: it’s also a great way of communicating this to your team. If they understand where the business is going then there’s a better chance that they will all pull in the same direction. Using your plan to track performance against financial targets also helps you quickly identify when parts of the business diverge from the plan. You can then either take corrective action to bring it back on track or come up with a new plan based on the new reality.
To run a successful business you need to know where to focus your effort. Which products / services are making the most money? Are there any which are actually losing you money? Focussing on the profitability of your products / services allows you to invest to sell more of the profitable ones and ask some hard questions of the loss makers.
A step beyond this is to focus on the profitability of individual customers based on the products they take, the sales channel they use, their credit terms and how easy they are to manage. Do you know which of your customers are generating profit and which need corrective action?
Growing businesses need more cash than stable ones:
- They need to invest in marketing and people for future growth;
- They need to keep paying the bills when sales increase but, because of credit given to customers, cash receipts are lagging behind;
- They may need to build up stocks if they are selling goods.
Depending on the business, this extra cash might be available from profits. If not then the business may need to consider external funding. We’ve written a paper on investors and sources of funding which covers this so I won’t go into too much detail. I will, however, say that you should make sure that you don’t leave it till the last minute: it takes time to raise cash. If you’re going to need funding, plan how much you’ll need, when you need and what type of funding is best for the business well in advance.
So that’s my choice: Future, Focus and Funding. If you have a different view, why not add a comment below?
