Financial Control

Having been through all the processes of getting your business started, now it is operational, it is vital that you control and manage the finances. Financial control is a clear method of realistically measuring your business performance and the way you can keep it on track.

Providing that you have already put together a business plan, a fundamental part of this is the financial budget - what you anticipated (in my simplistic terms) in terms of income against expenditure. Without a financial budget you have no really accurate method of measuring your actual performance against your anticipated performance and you will have little or no idea about possible shortfalls in capital or cash-flow planning.

There are many areas that we could discuss in this section about financial control, which would take many pages, so I will stick to generalisation and to a few basic principals - the internet is loaded with valuable information but it is most important to retain the services of a good accountant and a financial advisor - but make sure you get one who you can talk to and talks your language.

A couple of simple definitions that I found useful:

Financial control - “The management of a businesses costs and expenses in relation to budgeted amounts”

Cash Flow
Cash Flow - “Cash flow refers to the movement of cash into or out of a business, a project, or a financial product.



It is usually measured during a specified, finite period of time. Measurement of cash flow can be used to determine problems with a business's liquidity. Being profitable does not necessarily mean being liquid. A company can fail because of a shortage of cash, even while profitable” (Wikipedia).

Cash enables a business to survive and prosper and is the main indicator of business health. Business can survive for a short time without sales or profits, without cash it will die. Cash flow (or lack of it) is one of the single most important reasons why many businesses fail - regardless of how good the business is.

If you have prepared a sound business plan you will have already prepared a cash flow forecast, possibly based upon your market research or, if you are already trading, probably based upon historic data.

Now you will need to measure and record the differences between your predicted forecast and the reality of what has occurred; allowing you to adjust your position accordingly to be able to pay your debts or conversely expand into the next phase of your business plan.

Many times we see businesses who are very excited about a large order they have just won, the size of which has probably exceeded expectation. It may seem ridiculous to say, but this can be the point which can destroy a growing business - without good financial planning. Everyone concentrates on the excitement of winning the contract and the end result - the big increase in predicted turnover and projected profit. Without careful planning of the cash flow - how are you going to fund increases in raw material purchases, additional labour etc, in order to fulfil this large order? You may have had to invest in all kinds of expenditure, months before you see any cash flowing in from the customer and yet during this period you still have to pay all of your bills - plan ahead and be prepared.

Remember also - Ensure that sufficient cash flow is available to meet VAT and Taxation payments

Cash V’s Profit
It may seem a small point but one worthy of note - do not confuse your cash balances shown with your profit. This is a prime example of the point above - you may be able to predict a great overall profit for the trading year but face insolvency in the meantime as you have no immediate cash funds.

We have dealt with some basic principals about which some of the most frequent questions are asked, but do not forget that there are still many financial areas for which you will still have to account, and with all businesses you are obliged to maintain certain records and prepare accounts.

You will undoubtedly have an accountant in place or be seeking advice from a professional, but as a basic guideline the following are what you will need to be recording for your monthly budgets and end of year financial and management accounts:

• Profit and loss account
• Balance sheet
• Cash flow statement

Even sole traders and partnerships are required to maintain proper books and maintain accurate records in order to support annual income tax returns which have to be retained for a minimum of six years - at the very least you will need to have an accurate book keeping system as well as good administrative systems of records.



Taxes
Finally in this section a few reminders that you will need to be aware of when deciding if you can manage without getting the help of an accountant. You will need to be aware of your tax positions, VAT registration (if applicable), so bear in mind that you may need to consider which of the following may apply:

• V A T
• National Insurance
• PAYE
• Corporation Tax
• Self assessment
• Business rates
• Stamp taxes

By now - you may be questioning whether or not this new venture may be for you - financial control is extremely important and needs tight control - but for most of us - we simply use a good accountant and keep records so that he/she will keep you straight and legal – the controls and spreadsheets in place can become your greatest help - it is simply a matter of staying alert to possible pitfalls but never-the-less, enjoying the experience.

Most of us still get a real buzz in being involved with a new venture and it is a great feeling to see an idea germinate, and produce a great crop.

There are lots of organisations out there ready to help and advise, the important thing for you is to seek help where you feel you need it and make sure that you feel comfortable with your advisors, and that they help where they say they will and that you understand what they are doing - it is still your business, your ideas, and ultimately, your future.

If you want any help or advice or you want to run an idea past us, then contact High Reach Marketing today
Tel - 01284 717184 or 07887 846095

 

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