Many people survive perfectly well without developing in-depth insights into their company’s finances. But they do just that: ‘survive’.
If you’re serious about growing your venture in a profitable, sustainable way, you need to get your head around some of the core practices involved in managing your company’s books and gain a better appreciation of what it takes to run a financially secure business.
In essence, you need to become a financially savvy entrepreneur!
How to put your finances first in business
In our experience, you can consider yourself a financially savvy entrepreneur if you:
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Have a solid business plan in place
Good financial management is underpinned by a strategy that is clear, achievable, and above all, flexible.
Your business plan will contain a series of milestones that will influence how, where and when you spend your money – and the targets you need to reach in order to fulfil your ambitions. It should contain a comprehensive financial plan that accounts for your predicted cash flow, expenses, and tax liabilities, amongst other things.
However, when it comes to creating a business plan, it’s never ‘one and done’. As we have outlined in this article, you will likely need to adjust this document as your organisation expands and your priorities change.
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Prepare and review your monthly management accounts
We cannot stress to you how important it is to keep a close eye on your business finances – and often the most straightforward way to do this is to take a step back once a month and review your management accounts.
These accounts will provide you with an accurate snapshot into your company’s financial state across all of its functions. A good set will also provide trend analyses. By having a 360-degree view of what’s happening in every department, you respond quickly to opportunities and instances of risk, and ultimately make better informed decisions as to where to place your money.
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Take the time to digest this key financial information as soon as it comes through
It’s no good keeping a copy of your management accounts in your inbox if you’re not going to spend an hour or so digesting the numbers and working out what they really mean for the future direction of your company. Learn how to understand and interpret the data to get as much value as you possibly can from this exercise, otherwise it’s just going to be another document lying dormant in your Dropbox!
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Create your budgets – but be flexible
To be a successful entrepreneur, you need to be disciplined when it comes to managing your hard-earned cash. At a basic level, this means making sure you have enough resources to cover your costs and overheads, with enough left over to reinvest in the areas that will deliver a strong return.
Budgeting correctly will give you more confidence in your fiscal circumstances and help control your spending. However, it is a benchmark prepared at a moment in time, and you should be flexible should the circumstances require it.
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Run cash flow forecasts
Want to know when and where you can invest in your business to achieve the kind of growth you’re aiming for? Well, the answer lies in keeping on top of your cash flow!
You can find more information on why cash flow statements are crucial to your business here. Cash is king, and a rolling short term cash flow forecast will help you avoid any unforeseen problems.
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Understand how tax is calculated – and when it is due
How much do you need to set aside to cover your corporation tax bill? How will National Insurance contributions and pension contributions affect your wage bill? What level of tax can you expect to pay on any dividends you take from your organisation?
Getting to grips with your tax liabilities and making a note of the important tax deadlines that occur throughout the year is vital if you want to save as you go rather than tackle any forgotten-about bills further down the line (which, if not accounted for, can eat into your cash flow at an uncomfortable rate). Being organised in this respect will also prevent you from being exposed to any costly fines from HMRC.
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Have honest conversations with your accountants and tax advisors
Good finance professionals will never hold anything back. The people you choose to manage your business’ financial affairs should be open and transparent about how things are progressing; explain what your circumstances mean in real terms; and always provide you with ongoing advice based on their specific areas of expertise.
You need to feel confident in your finance team’s capabilities and be able to trust them with your company’s sensitive information. If you feel like you’re not getting maximum value from your finance team, it could be time to ask for help.
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Have a clear plan for what will happen in the event of an emergency
Creating a succession plan will make things so much easier for other business stakeholders and ensure a smooth transition amongst your employees if you were to become ill or pass away. It will also help you protect your estate’s wealth by ensuring funds are used efficiently in this kind of scenario.
Think about who you would like to take over the day-to-day running of your business if you’re no longer able to fulfil this role. If you have a team around you, consider who would be the natural ‘number 2’. If you are a sole shareholder, you will need to consider external options – perhaps a trusted friend or family member might fit the bill. Without forethought, your family and your employees could be left in an even more difficult situation if the worst should happen.
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Ask for help when you need it!
You didn’t set up your business because you have exceptional financial knowledge. You started your venture because you have a unique skillset that should be utilised to its maximum potential.
While it’s important to get a strong handle on your financial obligations as an entrepreneur, and to develop an understanding of how your financial function works, you will eventually need to bring in external support so your business can thrive in this area.
When this help arrives, don’t be afraid to ask questions, and feel free to pick your finance professionals’ brains. They are there to guide you, and it’s in their best interests to ensure you further your own understanding of their work.
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Engage a financial director to assist you with all the above, plus much more
The savviest entrepreneurs understand the value of hiring an outsourced finance director to take on the day-to-day management of many of the tasks listed here. Talk to Dartcell about how bringing in a part time FD will transform your financial operations and give you greater clarity over, and confidence in, your company’s finances. Look at how we have helped other entrepreneurs here: https://www.dartcell.co.uk/case-studies/