Put Your Finance Glasses on and Take Control of your Business

posted in: Business Advice 0

4 years ago, when I made the switch from being an FD in the larger corporate world, to a Finance Director Consultant to SMEs, I was shocked at the lack of financial information many businesses arm themselves with.   I saw business owners who put their houses on the line and business owners who would wake up everyday at 4AM panicking about their business’ cash position. They were financially blind.

To be become profitable, cash positive and be able to grow, you need financial visibility.

How can we achieve FINANCIAL VISIBILITY?

Your Finance Director needs to put together 3 powerful documents :

  • A meaningful budget
  • A rolling forecast
  • Cashflow projections

Meaningful Budget

Your budget needs to be meaningful, with valid drivers behind your budget lines. For instance, saying you’re going to increase revenue by 10% is not sufficient, if you don’t know how you’re going to get there. Have a list of targeted clients. Know which products or services will make up this revenue and how many you will sell of each (and when).  Perhaps growth will come from introducing a new geographical area- whatever it is, you need to plan it.


Your budget should have accountability built into it.  Have managers be accountable for the results in their area.  Make sure they are involved in the budgeting process too, so they are on board with the budgeted figures.  Where’s the motivation in being handed a sales target you had no say in devising?

Commentary and Analysis

Your FD should be including commentary alongside your P&L against budget. What did you learn as a business? If you lost a client, do you know why?  What’s selling, and what’s not. Margins are also useful tool here. Do you know what the gross margins are of the different products or services you sell ? Just a bit of analysis can reveal whether you are giving too may discounts for example. Perhaps you have a product which is hugely profitable, but your sales team are not trying to hard to sell it. Perhaps your biggest seller is loss making. You need to know these answers and a good Finance Director can get them for you.

Rolling Forecast

LIKE PUPPIES, BUDGETS ARE NOT JUST FOR CHRISTMAS. They need to be monitored closely.  Compare monthly, or quarterly figures against budget and know the reasons behind your variances. Are there any actions you can take on the back of these results?  Throughout the year you can make amendments in a rolling forecast. This way you can keep track of where you think the business will be by the end of the year.

Cashflow Projections

There are many factors that can cause a business to run out of cash, but the main underlying reason, is lack of visibility. If you have cashflow visibility a few months into the future at all times, then you can see where you might be low on cash and fix the problem before it happens.

The way you have visibility, is first, you need a budget which is reasonable, and achievable, as mentioned. If you’re budget or forecast is not likely to happen, then there is no point in it. Once you have a forecast, you can have a cashflow forecast which the P&L forecast feeds into.  You should get your Finance Director to do this. They will calculate ‘money in’ based on your customer payment terms, and ‘payments out’, based on your supplier terms, they will incorporate payroll, vat  elements, any Capex spend etc. I suggest always looking 6 months ahead.  Your finance director, or controller should be able to do this. If you don’t have one, get one in for this project.

Once you have done this exercise you may find, you are predicting that in 3 months’ time, your bank balance will be a minus figure. Now you can act and prevent this from occurring!

If you receive quality financial reporting, you have better control of your business. This gives you an advantage over your competitors and increases your chances of success and growth.

I can’t afford to hire a Finance Director!

Actually, you can.  Most businesses (SME size) do not need a full-time Finance Director on their payroll by the way. And many cannot afford it. But there is another way. One of the reasons I started WrightCFO in the first place was to provide SMEs with part-time FD support. You can buy this support in bite-size chunks. Turn the tap on when you need more support and turn it down when it’s time for a break. It works brilliantly, which is why we are a growing consultancy with increasingly more CFOs and FD’s offering a wider range of industry expertise. We give SMEs an opportunity to receive the same financial expertise as the big guys, but instead, their support is imbedded with flexibility and affordability.

Sophie Wright is a Portfolio Finance Director and the Founder of WrightCFO, the niche part-time FD Consultancy for SMEs. If you enjoyed this article and would like to read more like it, please sign up the monthly newsletter HERE.