Improving your financial management is vital to the success of a business. Poor financial information can hugely impact the development of a business, as well as magnifying problems as a business does scale up.
Through our partnership with the ScaleUp Institute, we attempt to bring the benefits of high quality financial information to the forefront of the UKs fast growth businesses. However, the quality of good financial information can be considered by business owners as something that is administrative in nature and not of value to the business.
What is financial information?
In a nutshell it can be considered as your profit and loss account and balance sheet. But also overlaying on top of this should be analysis of cash flow, both historic and future, as well as drilling down into detail, such as profitability by product etc. Importantly the information has to be relevant and timely.
Processing financial information is now easier than ever. With the introduction of cloud-based accounting packages that can be accessed remotely, via tablets and smart phones, it has never been easier to do the ‘mechanical’ part of maintaining the financials.
What is the benefit to businesses to increase their financial data?
Proper decision making can only be made based on accurate information. Therefore it is incredibly important to maintain your financial information on an accurate accounting basis. Accruals, prepayments, depreciation, are all concepts that are accounting in nature and as far away from cash as possible. But this is what will help a business understand its true profitability.
The requirement for accuracy and understanding what it all means is often overlooked but it is one of the key ingredients external investors look at when considering whether to invest in a business. A core principle of a scale-up business is the story but a great business leader needs to consider some key questions when seeking external investment; Why would someone want to lend you money if you don’t know what profit you are making and how much cash your business generates? Would you lend you the money as an outsider?
What is preventing businesses from improving their financial information?
There are three main things preventing a business from improving their financial information:
If a business is trying to improve its data then there need to be structures and processes in place. For a scale-up leader focusing on growing and developing their business this can often fall by the wayside.
There is, generally, a cost associated with the implementation of newer structures. This is normally because of the cost of advice taken to implement or the software, hardware or monitoring costs associated with it.
How to overcome the implementation hurdles
As they say, ‘rubbish in, rubbish out’ – so this is where experts are needed! Time and money invested in getting the right system reporting the right things to you at the right time is time and money well spent. Once the systems are in place then you should be able to direct your resources towards experts that can help you interpret this information to strategically drive the business forward.
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of publication.