Member Article

Safety in numbers

The most successful entrepreneurs have a detailed understanding of how their business is performing at any given moment. That’s not down to intuition or instinct – and it’s not a suggestion they’re control freaks. Rather, they have prioritised good quality reporting, processes and structures to ensure they get a constant stream of intelligence on their business’s financials.

This might not sound important, particularly for businesses winning new customers and growing rapidly. If you get the big picture right, won’t the day-to-day figures take care of themselves?

No, is the short answer: good quality financial information is crucial to all businesses but should be an even more pressing priority for those scaling up at pace. Otherwise, how do you know if those new customers are profitable? Or if your existing customers are staying with you? And will your investments for the future deliver returns in time for you to pay your bills next week or next month?

Every business needs to take control of its financial reporting, monitoring key performance indicators closely to reveal how well it is progressing and what owners and leaders should be concerned about. This data should be generated and accessed very regularly – and produced in a consistent way. Financial control and the ability to forecast accurately will enable you to grow more quickly and avoid risk.

For many businesses, the best way to tackle this challenge will be to get help from a trained accountant. That doesn’t have to mean hiring a finance director if your business is not ready to make this step, as there is the option to look at buying in services from an accountancy firm or a specialist adviser.

Good quality accounting software will also help – and your accountant should be able to recommend the right package for the needs of your business. Such software has never been more affordable, with cloud-based tools available that you can simply plug in to your business to automate number-crunching and reporting.

The key is to identify the right metrics for your business. Some indicators will be important to every organisation. Data on cashflow, for example, will help you avoid the trap of being unable to pay bills because revenues have yet to come in, a problem that trips up many fast-growing companies. Similarly, data on sales, costs and margins are essential for almost every firm.

However, there are also likely to be performance indicators appropriate for particular types of firm. An online retailer will naturally be focused on website performance and cost of customer acquisition, for example. A software-as-a-service provider might be particularly focused on churn rates.

To identify what needs to be in your reporting, think about your objectives for the business and work backwards. Where do you want your business to be in, say, two years’ time and what are the staging posts towards that ambition? What will it take to achieve your goals? Your reporting data should then include all the metrics you need to tell you whether the business is on track.

As the business scales, it will throw off more data, but large, fast-growing companies need to concentrate on the performance indicators that are most relevant and important. Keep linking these metrics to your business’s strategy and objectives, updating them over time if they change, so that financial reporting provides a swift indicator of whether you’re making the right progress.

Finally, as the business grows, it is likely the number of people who need access to this reporting will grow – the data may even underpin how you judge whether managers are delivering on the objectives you set them.

Remember ‘if you can’t measure it, you can’t manage it!’

This was posted in Bdaily's Members' News section by Steve Cordiner .