More often than not, owners get caught up in the day-to-day of running the business — paying bills and salaries — and do not regularly assess the financial position and future outlook of the company. The first proper look at the year often arrives with the annual financial statements, six to twelve months after year-end. By then the data is old, the pack is statutory, and there is no variance to a budget. That is too late to change course.
Staying on top of position and performance is a basic control, and it sits with the owner. It is how a growing business stays in charge of cash, margin and the next decision.
A few things are worth looking at every month, not once a year. On their own they aren't a reason to panic. Together, and in light of your industry and season, they tell you whether the business is doing what you think it is doing.
- Equity on the balance sheet — Ask for the latest management accounts. If total equity / owners’ equity is negative, the company has been spending more than it has been generating. That is worth knowing early, not when a loan is already on the table.
- Borrowing to fund ordinary operations — Seasonal swings and a once-off event are one thing. Borrowing every month to cover day-to-day costs means the operations are not funding themselves.
- Creditor terms — Stretching suppliers can buy a short window. Left as a habit, it is a cash problem wearing a different hat.
- Inventory write-offs — Theft, wastage, over-holding or expired stock all come out of cash. Stock is one of the easiest places for money to leak.
- Volumes — A customer base or product volume that shrinks year on year is not only a sales issue. Eventually there is not enough to cover overheads.
- Gross and net margins — Ask for the last three years of figures. Gross profit divided by revenue, net profit divided by revenue. If either is sliding, you are losing sales, costs are up, or both.
None of that requires a crisis. It requires a pack you actually read.
To stay on top of position and performance, these are the minimum:
Budgets
A budget is not a once-a-year homework exercise. It sets out the next 12 months, how you plan to hit the numbers, where the gaps are, and whether funding will be needed. It also gives departments something to be measured against.
Monthly management accounts
The owner should see the month while it is still the month. A useful pack is an income statement with variance to budget, a balance sheet and a cash flow statement — plus the non-financial measures that matter, such as sales, operations and people, if the business is large enough to justify them. Statutory annual financial statements are not a substitute.
Cash-flow management
A cash-flow forecast gives you warning of a shortfall while you can still collect, agree terms, or arrange a facility. It only works if debtors, creditors and inventory are being managed as well.
Inventory management
If you hold stock, you need a process that keeps theft, wastage, expired goods and excess holdings down. Uncontrolled stock is cash you thought you still had.
That is the work. Not a rescue pack. A rhythm the owner can run the business on.
CompassPoint helps owner-managed and growing businesses put that rhythm in place — including where there is already a bookkeeper or financial manager — and then sit above it for cash, budgets and the next decision.