By Julie Wong, Business Mentor and Fractional CFO, helping business owners grow to 6 figures and beyond

Working with business owners, I say, it’s never too early to think about finances. Whether you have just had the lightbulb moment or exiting your business, good financial knowledge is essential.

Poor financial and cash flow management, and poor planning are the top reasons for business failure.

Everything you do in business has a financial impact and if you think of it that way, how will it shape what you do on a daily basis.

Understanding your finances takes the guesswork out of your decisions and helps you build a thriving business. It will shape the decisions, like sales, marketing, pricing, operations and when to hire or making investments.

What you need to prioritise varies at each stage but there are some fundamentals.

Your business is your baby, you wouldn’t hand your child over to a childminder not understanding what needs to be done, so don’t be ignorant with your finances. Ultimately, you can delegate the task but not the responsibility. If your business fails, it’s on you, not your accountant. Learn the basics!

At Start-up/Pre-revenue

How does your business make money? Whether that’s income for you or funds to reinvest, if you’re a charity.

Know how your cash flows in and out. It’s crucial to understand how much money comes in, how much goes out, how much stays in the business, and when all of this happens. Cash flow management is vital. Forecast your cash.

Make sure you keep a separate business bank account for your business. Using your bank balance to judge the state of your business and as a basis for decision making is dangerous.

Learn about basic bookkeeping AND when you can afford it, outsource and delegate it.

As a Trading Business

Turnover is vanity; Profit is sanity.

A common mistake is focusing only on turnover but this does not give you the full picture. You could be selling a lot but how much actual profit are you making?

Know your industry margins and what factors are the key to your profitability? For example, a marketing agency may have a £3m turnover, but if it is spending £2m on running ads for their clients, their profit looks very different to a business that sells £3m of digital products with minimal outgoings.

As your business grows, plan your business, plan your profit and plan your cash. Profit is not accidental, make it intentional. Know the difference between growing and scaling a business; Scaling requires less effort compared to the increase in outcome.

Selling digital products does not require the same effort for each additional sale. The digital product has been created already, whereas a physical product or service needs the effort associated to deliver it.

Understanding this distinction will shape your growth strategies for your business.

Storytelling

Your financials tells the story about your business. It’s also the medical report on the health of your business. You can write how the story ends.

You impact every number in your financials. You make a decision and it will show up, whether that is consciously or unconsciously. To be fully in control, you need to make the unconscious, conscious.

Some factors are outside of your control, but you can still be aware even if you can’t control them. You could even mitigate the consequences, but not if you don’t know what they are.

Your financials should not be a surprise at the end of the year, when the accountant tells you what they are. It can be too late to reverse the damage or you could have missed out on opportunities. Take control and plan your business finances.

Be strategic

Define your goal and have a plan of action to get you there. This may be in words and pictures but then translate that into numbers.

Numbers hold you accountable. What gets measured, gets managed.

If you want to get X, then you need to do Y. Your numbers will tell you if you are on track.

Aligning action to your plan will tell you if your actions are the right ones, or if your plan is achievable or not.

Learn from the process of planning and tracking, what actually gets the results you want. That knowledge and insight into your business is gold dust when it comes to making your decisions.

And finally…

Financials is a language, every number tells a story, build your vocabulary.

Don’t put your business at risk because “you don’t like numbers”

Write your future. Make your success intentional, not accidental.

Love your numbers and they will reveal their magic to you. It’s financial empowerment.

Connect with Julie here: https://www.linkedin.com/in/julie-wong-fd-mentor/

---

*We strive to do our best when supporting small business and their growth. Our business databases can give you information and data that can help you with advertising, market research, company information, and industry factsheets. If you have already taken the plunge, we would love for you to join us at a seminar, our workshops cover digital marketing, business model canvas and planning, demystifying taxes and intellectual property to name a few. Visit our events page or website for more information.