Friday 24 January 2014

5 tips for simple financial management.

These tips will help you stay on top of your business finances. When your finances are managed well you feel in control and are able to make good, timely decisions to advance your business. Many businesses do the basics - the essential administration, but don't go that bit further to 'manage' their finances proactively.

1 Set a long term goal

There is a quote attributed to Lewis Carol and George Harrison, 'If you don't know where you're going, any road will take you there'. Having a long term goal gives a clear direction to your financial plan. It's a good idea to link your long term goal to exiting from your business some time in the future. So it could be, 'in 10 years I need £1m in a pension pot so that I can be financially secure in retirement'. Your plans and actions in your business then work towards this long term goal.

2 Set short term targets

Once you have your long term goal you can work back from this to set shorter term targets. If you need your business to be worth £1m in 10 years you can look at the value now and work out the annual growth rate required to achieve your goal. It's sensible for a small business to have a detailed financial target for at least 12 months ahead, broken down into revenues and costs.

3 Measure

So you have your detailed 12 month target. Now you need to measure how you are performing against this on a monthly basis. Idealy you should have a set routine of preparing your monthly accounts say by the second Friday of the following month and sticking to this. Your accounts should include an accurate profit & loss, balance sheet and debtor and creditor reports. As far as possible your monthly accounts should be prepared on a similar basis to your annual accounts so that there are no nasty surprises which pop out of the woodwork at the year end.

4 Take action

The most important bit. If your monthly figures are falling short of your plan you need to take action! Modify your products, change your pricing, listen more to your customers, cut those unnecessary costs. Whatever it takes, but you need to get your financial performance back on track. This is where the 'management' part of financial management comes in. If you just look at the figures and carry on as you were, there's no point.

5 Forecast

To complement your target and your measurement you need to forecast regularly. A rolling 12 month forecast for most small business should be a minimum. This should be a detailed forecast of revenues and costs - for businesses with tight cash balances a short term cashflow forecast is also recommended. Armed with your forecast, you can anticipate problems and opportunities in advance. 'If we carry on as we are now, in 12 months we are going to be £30k below our target. ' Ok, so what are you going to do about it? Having a forecast gives you the information to address a potential issue before it's too late. It is an essential tool.

So that's it. Good financial management in a nutshell. If you do all these things it will not guarantee you business success. It will mean that you are in the driving seat and can take control. The decisions you make, based on your financial reporting will determine how you get on. 



Sunday 12 January 2014

A little light reading

January is great time for browsing any books you might have received in your Christmas stocking. I love picking them up, reading the reviews, the forwards, dipping in a bit and then choosing which one to look at first. I always put a few business books on my Christmas list. That is very sad I know but I genuinely enjoy reading them so it works for me. Over the last few years I must have read at least 100 business books. Most are on my shelves in my office. A few duds do not make the shelves and have been recycled at the nearest charity shop. My wife can't understand how, if I have read all these books and accumulated  all this knowledge, why I am not a multi-millionaire by now. I tell her I am working on it and she needs to be patient.

The kind of books I like are by people who have 'been there and done it' and are writing based on their own experience. The books I like least are the ones where the writer's main purpose seems to be to write books to sell to gullible people (like me) about getting rich by the power of thought or by doing things that the author has never put into practice themselves. In my personal opinion (and I think I'm in a minority here), one of the worst business books I (almost) read (and I say 'almost' because I packed it in about half way through) is 'Think and grow rich' by Napoleon Hill. It is apparently one of the best selling business books of all time. It has the advantage of having been written a very long time ago (allowing for more time for more people to buy it) but it has been relegated to my bottom shelf. This shelf contains books which I may just want to look at again to check something over but I would be very unlikely to re-read from cover to cover again.

Some books I do read again and these are destined for my top shelf where they have pride of place. These are the ones I recommend to my business clients and I refer to often as being useful, practical guides. My 'Top 3' in descending order are:

1, How to get rich by Felix Dennis

A bit of a naff title but a truly fantastic book. Brilliantly written and full of frank, honest view about how to set up and run successful businesses and create wealth. 

2. The eMyth revisited by Michael Gerber

All about setting up the structures and processes necessary to develop and grow a small business. Easy to read and great, practical advice

3. The Richer Way by Julian Richer

Once you have created your small business Julian Richer has some great ideas for recruiting, rewarding and retaining the best employees. It is based on his experience running Hi-Fi chain, 'Richer Sounds'.

Even if a book is not one of the best, almost every one I read is stimulating in some way or other. Reading regularly helps me to challenge my thinking and approach and keep things fresh. So I'll be ploughing into this little lot in the photo over the next few weeks. You never know, maybe one of them will make it onto my top shelf?


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