Ten Financial basics for business growth

Many mid-sized businesses that are focused on their business growth strategy are constrained by the resources available for the accounting and finance function. These owners or CEOs often ask me about this dilemma. Here are the ten essentials that I believe must be in every business for the Accounting function to support a dynamic, growing business:

1. Establish formal, written credit & collection policies & procedures and regularly review non-compliant accounts with the person responsible;
2. Ensure that you have the financing for growth and contingencies before you need it. This requires cash flow forecasts so that you can anticipate and manage any expected cash shortfall, well in advance of the need;
3. Manage your cash as a matter of routine – not just when it is tight;
4. Budget and measure against the budget, at least monthly. Ensure that your Controller provides analysis of all material variances to budget. Recognize variances to the budget as opportunities – to manage what went wrong or to replicate what went right;
5. Implement an accounting system, processes and reporting that measure the operations of your business and give you the information you need to run your business – not just compliance required for tax and annual financial statements;
6. Categorize your revenue and gross profit in a way that suits your business.  Measure and recognize the differences in each category (e.g. by business line, by type of customer, by geographic region, etc.).  Focus on what you can do to improve each category separately;
7. Define, measure and report the Key Performance Indicators (KPI) of your business and investigate changes. Most important, plan and take steps to improve each KPI;
8. Review the key financial ratios each month. If your monthly reporting package does not include all the relevant ratios (that, for example, your bank uses to monitor your business), you are leaving yourself exposed to a big surprise. These ratios can get out of alignment when there is growth and when there is a slowdown and you want to alert your bank to them long before they challenge you. Do not underestimate your bank’s ability to stop payment on a few cheques (including the payroll) to get your attention;
9. Communicate with your bank manager so that there are no surprises, especially with bad news. It is very rare that a strategy of denial is more successful than confronting the reality and communicating it effectively; and
10. While not ignoring the alligators that are snapping at your …. Focus on the opportunities that will drive your business forward to growth and success, by thinking strategically.

Hopefully this article will provide you with ideas to think of at least one strategic initiative to start the ball rolling. It does not matter whether you are the head of the Accounting/Finance function or the owner/CEO; all these basic concepts should be the foundation of every business.

If your finance/accounting team is not fulfilling the needs of your business and need guidance, please contact me at (416) 726-8256 or James@MastermindSolutions.ca

James Phillipson is a Chartered Accountant and a Principal of Mastermind Solutions Inc. with over thirty years experience in large and small businesses.  He has provided financial counseling to his clients since 1996, often in the role of a Controller or Chief Financial Officer, for both public and private corporate clients.  James has experience in financial roles in a wide variety of businesses and industries.