Congratulations. You have guided the business through the initial phase. You have built a solid customer base; turnover is increasing; suppliers are on-stream. But there doesn’t seem to be much money in the bank and you are not able to get much money out of the business. Where is the money going? Are you doing as well as you expected?
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You need more timely and detailed information on your trading performance. Your records – that pile of invoices in the drawer and the bank paying-in book – are not much help. What information do you need? Would a computer help you to keep track of your business performance, or would that just lead to more time spent performing non-productive tasks?
Managing your cash resources and making sure you have enough to meet your needs – paying wages, buying supplies and meeting your personal financial requirements – is critical to the health of your business.
Up-to-date records of your trading transactions will enable you to produce regular cashflow forecasts, which will in turn prepare you for potential problems ahead. Cashflow forecasts can highlight when your business might run low on cash and can be the basis for an action plan to remedy the situation before it occurs.
An ICAEW Chartered Accountant will help you with cashflow management and can offer invaluable advice in the following areas:
The vision and strategic capabilities of an ICAEW Chartered Accountant will help you to monitor the progress of your business through three key activities.
Identifying profit and loss – many businesses do not have adequate systems for identifying the amounts of profit or loss generated by different products and services. This information is essential if the business is to grow stronger. It is also important to know the costs of different areas of administration, so that overheads are not allowed to swallow the profits made from gross margins. To keep track of where profits and costs are coming from, you may need to have a properly designed management information system to provide the essential facts quickly and accurately.
Obtaining timely information – annual accounts are not enough to control a business. You must know what is happening to profits and losses on a much more regular basis. Most businesses need to produce quarterly operating statements and, better still, at monthly intervals. Some businesses even make financial information available in real time.
Setting financial activities – businesses need to plan ahead and compare forecast figures with actual results. Break-even analysis, business ratios, budgets and discounted cash flow are some of the methods that can be used to set realistic financial targets and then keep you on course to achieve them. An ICAEW Chartered Accountant is qualified to advise you on the most appropriate systems for you and which methods to adopt.
Taking on your first employee can be a daunting prospect, particularly if you do not have staff management experience. For a new business, it can add an extra layer of bureaucracy to the task of running your company and making it pay. An ICAEW Chartered Accountant can help you to navigate crucial employment issues and understand the rights of your future employees.
The decision to recruit should only be taken after careful consideration. You may opt instead to use contractors or outsource certain functions of your business. If you find yourself recruiting staff directly, it is worth taking steps to ensure that you’re well prepared.
Another area you will need to consider is following up references, medical reports and qualifications. There are even regulations covering the way in which you reject unsuccessful candidates. From contracts to remuneration, performance reviews to holidays, overtime and sick pay, the support of an ICAEW Chartered Accountant will help you to grow your business without becoming caught up in the detail.
The vision and analytical abilities of an ICAEW Chartered Accountant are of real value when it comes to preparing business plans and budgets. If you are setting up a new venture, it is important to put together a business and financial plan, even if you do not need to raise external finance. This should include details of markets served by the business, history, management and your future plans. Something similar will be needed if you later consider selling the business. Your plan should also feature a projected profit and loss account, cashflow and a balance sheet.
Budgets are normally used internally to help management to run the business, monitor its progress and develop action plans to achieve your objectives. Budgets usually contain the same basic information as business plans, but they usually deal in shorter timescales and can be broken down into weekly, monthly or quarterly periods.
Financial management information is compared with the budget to monitor progress and to decide if changes in planned actions are required. A comparison of financial performance figures with budget, together with key ratios, is an invaluable source of information for achieving the effective running of your business. If you want to focus on other areas of your business, ask an ICAEW Chartered Accountant.