Man working out stats with calculator

Information & Analysis

Everything you need to control your business

“What you can’t measure, you can’t manage (or improve)” is a quotation often attributed to Peter Drucker, the renowned management consultant guru. Fundamental to the running of a successful business is the accurate measurement of the activities taking place within it. This applies to all areas of the business. It’s not just purely a finance thing.

When a business reaches a size where the business owner can no longer hands-on manage day-to-day, it’s not enough to rely on the headline sales numbers and the daily bank balance. If you wait for your accountant to tell you the business profit or loss once a year, chances are it’s already too late if things go wrong. And, in any case, this won’t uncover which part of the business to look at if there is a problem.

The fact is, most business owners don’t have the necessary information and reporting systems that draw attention to the areas where they need to spend most time. Having the right information on a timely basis lets a business owner manage by exception. Your scarcest resource time is focused only on the areas where the greatest threats and the greatest opportunities lie.

 

Every business should have accurate information systems that can be used to measure and report financial performance on a timely basis. Many don’t and most of these then fail to reach their true potential or the owner’s desired exit value.

The act of putting finances in order involves:

  1. Accurate recording of transactions with appropriate coding
  2. Preparing an annual budget before the start of each financial year
  3. Producing management accounts comparing actual against budget and prior year both each month and cumulatively
  4. Knowing stock and work-in-progress numbers
  5. Undertaking trend analysis to identify unexpected change

Proper monthly management accounts don’t come from just pushing a button on the computer accounts package. Nor should they be prepared in the same format as the annual statutory accounts. The former is unlikely to be accurate. The latter do not show sufficient detail to truly comprehend what is happening in the business.

Key to accurate management accounts is the concise matching of sales income in any period with the associated costs. But to be meaningful, these numbers must be compared against expectations as set out in the budget, and against what happened in the same period last year, and against recent monthly trends.

Many studies have shown that businesses that plan and set goals are significantly more successful than those which leave their future to chance. And the first part of preparing a fully integrated financial model is in understanding its purpose (ie who and what is it for) and the business vision over the period of the projection.

From there, it’s a question of working backwards. What additional resources will be needed to hit the milestones? What actions are to be taken? How much will this cost? Are the assumptions realistic? Are the projections believable? Our FDs will make sure this is the case.