How Successful Business Owners Manage Money

Of the five key areas involved in running most businesses i.e. your product/service, marketing and sales, operations and finance, human resources and customer service… Finance is probably the one that brings most businesses undone! It’s the one that many business owners avoid because they don’t feel comfortable with it.

Here are some tips from successful businesses that we’ve observed over the years:

1. If finance isn’t your thing (or your partner’s) – admit it and get a qualified person to look after it for you. As well as a bookkeeper, someone (financial controller/business advisor) who can read reports, explain them to you, highlight the key issues and guide you to use the information to make profit and cash-flow improvements, as well as to avoid hitting an iceberg. It’s not necessary to employ a full timer to do this, as there are great out-sourced service providers available to help part time, which is more cost effective.

2. Invest in a good accounting system – it will save you thousands of dollars in data entry and reconciling time if you get it right.

3. Invest in a good operational management system e.g. stock control, job management, point of sale etc. that links to your accounting system. This will also save you thousands of dollars in avoiding over/under stock, jobs in progress for too long prior to being invoiced.

4. Ensure operational and accounting systems are set up right from the beginning. Correct opening balances need to be entered. It needs to be set up with your outcome in mind i.e. what information you want to get out of it to help you run your business more effectively. ‘Change and Project Management’ will need to be considered i.e. ensuring staff understand the reason for a new system and processes, managing and allocating the resources for a successful implementation.

5. Train people who will be using the systems properly to get maximum value from your investment. It’s a great benefit for staff too, as they learn new skills and feel motivated because they’re part of the improvement process.

6. Understand what information you need to get from your systems to keep abreast of the KPIs (Key Performance Indicators) in your business. Industry Benchmarks can be a great clue about these or simply consider if you were stuck on a desert island for a few weeks what are the six numbers you would want to know e.g. weekly sales, bank balance, customer enquiries, quotes issued/won, sales pipeline, staff productivity etc.

7. Have the discipline to view the reports regularly and seek help from a professional to act as a ‘sounding board’ and to work with you to develop strategy to improve your results e.g. profit and cash flow. When reading reports focus attention on percentages e.g. Gross Profit and Net Profit. These are important to keep an eye on, as they are a quick indicator of changes that need attention.

8. Have a really good understanding of what impacts profit and cash flow i.e. Sales, Pricing, Costs%, Overheads%, Accounts Receivable Days, Accounts Payable Days, Inventory Days and WIP Days. Also know your ‘Break-even’ sales and the difference between margin and mark-up. We’ve seen many examples where these get mixed up and cost much gross profit margin that you can never get back.

9. Think ahead and have a Budget and Cash Flow Forecast and understand the difference between them.   The budget forecasts profit, whereas the Cash Flow Forecasts deals with money in and out of the business. The best type of budget and cash flow is a ‘Rolling Forecast’, which shows the actuals for the year so far, added to the budget for the rest of the year. That way you will see exactly what your position will be if you meet targets. This allows you to plan for growth and avoid running out of funds. Review them monthly and take corrective action quickly. Your bank or lender will love this too!

10. Use the time saved with good systems to focus on the other areas of business like marketing, sales, operations, customer service, product/service development and staff management.

All of the above allows you to sleep well at night knowing you’ve done all you possibly can to be in control of your situation, rather than being at the mercy of fluctuations and impact of events beyond your control.

CFO On-Call is a team of financial and business advisors who work with open-minded people, committed to business growth and achieving success. For help call us on 1300 36 24 36 or visit our website

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