With good financial reporting and processes, it is possible not to just deal with uncertainty, but to thrive in volatile times. Business can be like a game of chess where you plan your strategy and try to foresee what's up ahead. You can't control your opponent's moves but you can have the knowledge to make reasonable decisions.
As a part-time Financial Director, I see how processes and financial reports give more control and greater certainty to SMEs so I'm sharing the key areas with you below. These will help you plan your business finances and strategy achieving a strong position on the chess board or 'checkmate'!
Seven financial processes to help you manage your business with more certainty
1. Keep up to date
Monitoring progress is even more important than usual if results and outcomes are in doubt. Timely information aids responsiveness to change.
Up to date ledgers mean that debtors can be chased as soon as they become overdue and the complete creditors position can be understood.
Operations and Finance ought to be in regular dialogue. The more regular and in-depth that meetings and informal conversations are, the better that Finance will understand the business and be able to help.
3. Know where you are
Understanding the Balance Sheet lets you know where the business is from a financial perspective at the point in time it is prepared. This is where keeping up to date really comes into its own, knowing where you are now is much more useful than where you were a month or more ago.
The Balance Sheet is where the non-Profit and Loss nasties hide and also forms the key information point for driving short-term forecasting.
4. Produce forecasts
Dust off your crystal ball, this is the chance to take time and get away from the everyday detail to think about the future and wider horizons. Examine the markets, survey the landscape and bear in mind that “Cash is King”.
In the short-term, out to about 3 months, it is all about close working capital management and knowing where you are in terms of cash and meeting liabilities such as PAYE, VAT and Payroll as they fall due.
Medium to long-term planning requires some more imagination and involves turning plans and aspirations into concrete numerical expectations.
Answering questions such as: “Where are the disruptive opportunities?”; “What are the key non-financial indicators and drivers?”; “Where are the likely risks?”; and “What mitigation can be put in place?” will all help the forecasts to take shape. Your FinanceHead can work through these financial planning questions with you.
5. Flex the forecasts
Having produced a base-case forecast with the most likely results, the uncertain aspects can then be incorporated. Undertaking scenario analysis and producing what-if scenarios allows you identify the key assumptions underlying the forecasts, work out where the big levers are in your business and ensure there are sufficient buffers to weather unexpected events.
6. Review expectations against outcomes
However well dusted the crystal ball was, they are murky at best. By reviewing expectations against outcomes, financial learning can take place. It is when assumptions are challenged, plans monitored, and results analysed, that innovative ideas can be formulated. These new concepts can then be incorporated into the forecasting and modelling.
As Richard Feynman, the Noble Prize-winning physicist put it: “If experimental results don’t agree with the theory, then the theory is wrong”.
Iterate, learn and remember (to mis-quote a paraphrase of Darwin) - it is not the smartest or strongest that survive, it is those most responsive to change.
In these uncertain times, it can be even more daunting to run your own business. Having your very own part-time FD can help you navigate the uncertain business chess board! A FinanceHead can not only create these financial reports but use them to guide your future management decisions. Please contact Michael Cartwright for an introduction to find your part-time FD.