How to stay in control of your finances

As you grow, you stretch your business past its current capabilities. Growth will eat into your reserves fast: so you need to become more sophisticated in how you manage your finances. You will be investing in new resources, so you'll need to use appropriate systems, controls and planning to keep an eye on your financial position. This guide will give you a better understanding of how to do this.

Getting your accounts in order

  • With all the positives of growth, you can expect concomitant cashflow pressures, staffing issues and supply shortfalls. If you keep a close eye on forecasts and accounts and prepare for shortfalls, this should not hamper your business's development.
  • You need accurate and up-to-date financial information if you are going to support the growth of your business.
  • You should review and improve your accounting systems as you expand, as those you started out with will likely be unable to cope.
  • This means bringing the handling of your accounts in-house: you have to take ownership of your finances as your business becomes more complex.
  • To ensure the accounts are produced professionally, you should look at hiring a finance director. They will be able to use accurate financial figures to help you make key decisions in the business and continue your growth.

Using the data

  • You need to know exactly how much profit is in your business  if you are going to continue your expansion
    • Have you got enough money to employ more staff or buy vital new equipment?
    • Do you need to look for outside investment to boost your expansion?
  • Accurate data can be used to help with all the other big decisions related to growth such as sales, salaries and stock levels.
  • If you have relied on gut-feel or instinct to make these decisions in the past -- or if you have used separate departments to generate different revenue numbers - reconcile yourself to the fact those days are over
  • Your decisions should be based on accurate, company-wide financial information provided to you by an FD and/or through the use of financial business software

Future plan

  • A financial plan should assess the financial state of your business and your financial aims: it will help you plan for the future, set targets and monitor progress
  • Will your sales volume and gross profits cover the increased costs of your business growth?
  • Take time once a month to compare your financial predictions with reality and see how they are matching up
  • You should also look at benchmarking your financial performances with other companies in your business sector to see how you compare

Checklist

  • First off, trim your overheads, chase debtors and negotiate better prices with suppliers
  • Bring your accounting in-house and update your accounting systems
  • Put budgeting and planning systems in place to help you keep track of your growth and of your finances
  • Set time aside once a month to compare your financial position with our financial predictions
  • Consider taking on a finance director

FAQ

How can I tell if my business is growing too quickly?
Watch out for rapid growth: if you don't keep it in check, it can hurt your business as much as no growth at all. If expenses are exceeding revenues even while your turnover increases; and if you keep taking out loans to keep operations going; and if productivity is not meeting demand, you have a rapid growth problem. The decision to grow a company should be based on sound financial information, market knowledge and analysis: don't get carried away by early success.

Jargon Buster:

Organic growth: growth that comes from within a business, often occasioned by increasing sales and efficiency

Inorganic growth: growth occasioned through buying other businesses

Resources

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