The Biggest Mistakes Business Owners Make With Their Finance Team

One of the most common struggles we hear from business owners is that they don't know what they should be getting from their finance team.

To improve the performance of your business, some areas are clear-cut. Your marketing team should be generating leads so there are more people to buy your product or service. Your sales team is there to convert those leads into paying customers.

But setting and communicating expectations of your finance department? Not so clear.

To keep it simple, the objective of your finance team is to provide timely and accurate financial reporting.

What is simple is not always easy, though. It's one thing to understand the importance of getting correct financial information regularly; it's another thing to actually get it.

Additionally, once you do receive financial information, verifying its accuracy is the next hurdle. Most business owners, who are exceptional at what they do within their industry, don't typically have a passion for finance and numbers.  As a result, we frequently see business owners who:

• Don't know what to ask for from their finance team, and
• Don't have the confidence to verify the information they do receive.

This lack of financial clarity is a major obstacle to growth. It's difficult to make informed decisions, identify opportunities, and comply with regulations. Worst case scenario, it can even lead to financial ruin.

To help overcome this, this blog post explores two of the most common mistakes business owners make with their finance teams, and what they can do differently instead.

Where Business Owners Go Wrong with Their Finance Team

Mistake #1: Not knowing what financial information to ask for.

Successful business owners who have built their businesses from the ground up – whether in manufacturing, wholesale, with a trade, or something else – tend to be highly skilled in their profession. But when it comes to finances, a lack of understanding can emerge. Most don't know what they need from their finance teams, let alone how to ask for it. It's the same reason that people are scared they will get ripped off by a mechanic… because they don’t know what to look for or what to ask.

What to do instead: Understand that you must receive timely and accurate reporting.

How to ensure the accuracy of your financial reporting

When it comes to accuracy, the reports to start with are your balance sheet and your profit and loss (P&L) statement.

Your balance sheet is made up of three elements: assets (what you own), liabilities (what you owe), and equity (the difference between the two). To ensure you have an accurate balance sheet, all the assets and liabilities need to be real and verified. If your finance team can’t justify an asset or liability, it needs to become a question.

(Accountants won’t tell you this, but when reviewing the accuracy of your financials, they will always start with the balance sheet - so you should, too.)

Key takeaway: Ensure all balance sheet items are understood and can be justified.

Next, look at your P&L statement. This indicates whether you've made a profit or incurred a loss by subtracting expenses from revenue. (The accuracy of your P&L hinges on the precision of your balance sheet, so it's vital your balance sheet is the first report to get right.)

To ensure the accurate allocation of revenue and expenses on your P&L, examine items such as: is the telephone bill going to the telephone account? Is the revenue going to the right account? Are wages going to the right account?

Key takeaway: Ensure all P&L items are appropriately allocated.

The importance of timeliness of your financial reporting

Would an outdated newspaper from 2020 be of any interest today? Similarly, outdated financial reports offer little value. Getting your financial report for June in August is just too late.

What to do instead: Aim to receive reports within a week or two at most after the month ends.

Let's look at the steps of how to make that happen.

Firstly, all source data needs to be entered into your finance software by your finance team as quickly as possible. This includes:

• All sales invoices being entered.
• All supplier invoices being entered.
• Payroll being entered and reconciled.
• All bank accounts, credit cards and loan being reconciled.

When it comes to specific deadlines, how many days after end of month (EOM) you receive reporting will depend on what is practical for your business. We have clients who close off by the second business day of the month, and others who close off by the tenth business day of the month.

Key takeaway: Set a target day after EOM for when you will receive your financial reporting.

Mistake #2: Not communicating  your expectations to your finance team.

Knowing what to receive and when is only the first step. The next mistake we see business owners make is not communicating their expectations around accuracy and timeliness to their finance team. This can lead to problems such as:

• Receiving inaccurate financial information that can lead to poor or slow decision-making.
• Not having timely access to financial information, which can make it difficult to react to changes in the market.
• Frustrations and tension between the business owner and the finance team.

What to do instead: Clearly communicate your expectations to your finance team.

How to set clear expectations with your finance team

To avoid running into problems, have clear and concise conversations with your finance team about:

• What financial reports you need to receive and how often.
• The level of detail you need in the reports.
• The deadlines for receiving the reports.
• The consequences for not meeting the deadlines.

By communicating your expectations clearly, you can help ensure that your finance team is providing you with the information you need to make informed decisions.

Mistake #3: Not knowing how to verify financial information.

Even if you've communicated your expectations clearly, it's still important to be able to verify the accuracy of the financial information you receive. This is especially important when finance isn't your forte..

Not being able to verify financial information can be a problem for a number of reasons, including:

• You may not be able to identify errors in the financial information.
• You may not be able to identify fraud or other financial crimes.
• You may not be able to defend yourself against accusations of financial impropriety.

What to do instead: Foster a culture of open communication.

How to confidently verify your financial information

Regularly review your financial reports. Anything that doesn't make sense should be clarified immediately. This not only boosts your confidence, but also enriches your financial understanding.

How to Get Timely & Accurate Reporting

By following the steps above, you can improve your communication with your finance team and gain the confidence you need to get correct financial information on a regular basis. In summary:

• Take the time to learn about financial statements. Get to know the basics of what your reports should be telling you.
• Ask questions of your finance team. Don't be afraid to ask questions about the financial information you receive. The more you know, the better equipped you'll be to identify problems.
• Set clear expectations. Make sure you are clear about what information you need and how often you need it.
• Provide regular feedback. Let your finance team know what you think of the reports they are providing and how they can be improved.
• Invest in training. Make sure your finance team has the skills and knowledge they need to provide accurate and timely reporting.
• Create a culture of trust. Create an environment where your finance team feels comfortable sharing information with you.
• Hire a financial advisor. If you need help understanding the financial information you receive, consider hiring a financial advisor.

What does working with an outsourced financial advisor look like?

If you're unsure what working with an external financial advisor looks like or how it could help your business, it may be useful to get in touch with us. We offer free discovery sessions where we can walk you through what the process would look like for your specific business, especially in relation to your finance and growth goals.

Conclusion

Navigating the complex world of business finance may not come naturally to all business owners, but it's a challenge that must be faced head-on. You may not wear the hat of a CFO or accountant, but you should be in a position to interpret financial data. Collaborate with your finance team, seek their insights, learn about any concerns or opportunities they see.

Remember, your finance team isn't just a part of the back office; they're strategic partners who can help steer the ship. Treat them as such, and the results can be transformative. The more you're involved, the better you can use the financial data to drive informed strategies.

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