Know Your Numbers...
You know your market. You know your product. But how well do you know your numbers? Surprisingly, many people I have worked with over the years do not have a clear understanding of their business’s finances.
Often the fact the business operates with a cash surplus, or that the end of year accounts shows a net positive, is enough to make business owners feel things are going well. But there is little or no forensic understanding of the figures and the tell-tale signs they provide, and not knowing this level of detail can have a disastrous impact on your business’s future performance. Equally, in many cases, there is a sense of security from having a positive cash-flow sitting in the business current account, and the notion of investing it, moving it or examining it more closely, is uncomfortable
In this article, I will provide some guidance about the ways in which you can get a better handle on your numbers and the benefits this will give you.
Firstly, you are not on your own. There is a range of accounting software out there, such as Zero, Sage or Quickbooks, all of which provide excellent account management functions and will produce detailed information about your business. Also, use a good accountant. They are not there to simply produce your end of year figures. A good accountant will be able to help you understand the detail of your numbers, especially if they can spot early signs of concern. They are there to guide you in where and when to invest.
Understanding your costs as a percentage of your turnover is vital. Ask your accountant for year-on-year cost figures. This will help you to monitor your annual expenses and see where there are dramatic increases and question why. There may be reductions in expenses, and this is equally important to question and ensure you have a thorough understanding as to why this has occurred. Engaging regularly with your accountant is time and money well spent.
One of the best ways to keep up to date with your on-year performance is to create monthly budget monitoring. Often, the first time a business really starts to look at their figures is when things have started to go wrong, and by then it can be too late. But monthly monitoring not only gives you an early warning of any concerns, but it also helps you plan ahead with confidence, especially if you are delivering any one-off projects requiring investment and strict timescales. This is aided by setting up cashflow forecasting. It is a complex task, but working with your accountant, it can transform your decision making and planning ability.
It is important to remember that financial performance does not all have to sit squarely on your shoulders. By having set budgets and monthly monitoring, it provides you with the opportunity to delegate budget responsibility between roles and departments within the business. The shared responsibility that arises from delegated budgets also helps foster a strong team spirit. Setting sales targets can bring whole teams together and helps drive the top line. Involving your team in the budgetary planning process and sharing information with them will harness team focus, motivation and trust. And don’t forget to celebrate!!
Having quarterly reviews of the business financials with your Senior Leadership Team (and giving them numbers they can all understand) will help them have operational and strategic clarity that relates directly to the bottom line. My advice is ‘don’t be afraid to share your numbers’ with the whole team. Creating healthy competition between departments or between different locations of the business is a good way to foster team spirit and local motivation, and it helps them to see that their own contribution is adding to the success of the business overall. However, you should also be willing to share the information when the numbers are not good. Just as the success of the business should be shared by the whole team, the challenging times can only be navigated by engaging them as well. If you have fostered strong strategic and operational awareness by previously sharing your financials with your SLT, they will be better equipped to help you manage the tough times.
Ultimately, there should be no surprises in your numbers. The company’s finances affect everything the business does. Knowing your numbers and openly sharing them with your team will give you clarity, improved planning ability, greater trust and a stronger senior team to enjoy the good times but also to navigate stormier seas.