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:
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.
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.
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.
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:
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.
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:
What to do instead: Clearly communicate your expectations to your finance team.
To avoid running into problems, have clear and concise conversations with your finance team about:
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.
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:
What to do instead: Foster a culture of open communication.
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.
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:
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.
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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