If you work for a SME (small to medium sized enterprise) the chances are that your profits and cash flow are currently under more pressure than you’ve ever seen before. Cash is tight and even loyal customers are taking longer to pay.
So now, more than ever, you need management accounts to help you run your business. And if you don’t want to end up in insolvency, you need these FAST. It’s been shown time and time again that businesses that aren’t on top of the financials are the ones that fail first. Relying on “back of an envelope” sales and profit figures just won’t suffice. And out of date management information doesn’t help either. Right now, failing to forecast really can mean failing to survive.
Q: So what can you do to keep on top?
A: Make sure you get monthly management accounts from your Accounts Team and/or your accountant. And make sure you get these quickly. At the very least, you should be getting the following reports on a monthly basis:
· Profit and Loss (P&L) for the month and the year to date, showing budgeted figures against actual and an explanation of any differences (“variances”);
· Balance Sheet, highlighting available working capital (cash+debtors-creditors);
· Cash flow forecast for the next 6months;
· Profit forecast for the financial year; and
· Commentary about the past month’s performance. Numbers alone are NOT enough! You need to be able to understand what the numbers show and make recommendations as to what action needs to be taken going forward.
Q: How quickly do I need this information?
A: The purpose of these management accounts is to help you make good business decisions. So if you only get the numbers six weeks after the month end, you’ve lost the key benefit. The quicker you can see what way the wind is blowing, the quicker you can take remedial action.
We recommend that if you’re not getting this information within 10 days of month end, you need to have a conversation with you’re accountant to find out what’s causing the delay. And then sort it out. FAST.
And if it’s taking 5-10 days after month end, you may also want to see what can be done to speed up the process.
Q: Ouch! I have a problem. What can I do?
A: Firstly, consider up-skilling your existing accounts team, especially if you are reliant on an external accountant to produce the final numbers. With some good quality, intensive training your accounts team could probably expand their capabilities and take more tasks “in-house”, saving you money in the long-run. Consider talking to a company such as Accounts Training www.AccountsTraining.co.uk – based in London (020 8332 7567), they have helped many companies to do exactly that. They can also provide independent consultancy on a wide-range of financial matters from how to get the best out of Sage software through to how to implement financial KPIs.
Secondly, consider taking on a part-time Finance Director. If you need good independent advice as to how best to manage cash flow, negotiate contracts and arrange financing, be it a bank loan or invoice financing, then this service can be worth its weight in gold. Companies such as FD Solutions – www.fdsolutions.uk.com can give you all the expertise of a Finance Director, but on a part-time, flexible basis, so you only pay for what you use – ideal for smaller, growing businesses.
But remember, whilst professional advice may seem like a costly investment when cash is tight, in the long run a good accountant will save you far more money than the cost of their fees. And it may mean the difference between whether or not you’re still around this time next year….
