Business growth through the finance function
A finance function in a life style business is likely to only need basic tax and compliance advice. In recent years there has been a mushroom of entrepreneurs setting up life style business. The aim of life style business is to provide a certain level of profit, and no more, in order to maintain a certain life style. There is absolutely nothing wrong with this type of business and it can provide an access to other types of business as it provides cash flow which can be used in another business.
Growth via the finance function
If on the other hand you are looking for continual growth then it’s clear there is a correlation between having a strong finance function and sustained growth and profitability. A paper by the Association of Chartered Certified Accountants looked at interviews with over 10,000 UK SME’s and the results showed that financial capability within a business is not the result of business growth, but one of its causes. The report can be found by clicking the following link ACCA study
The majority of SME’s are forced to improve their finance function on an ad hoc basis depending on business priorities, however the ones that also treated the development of their finance function as a priority where the ones that sustained longevity, profitability and growth. The combination of business planning with regular reviews, management reporting, and the use of financially trained staff are a prerequisite to growth, profitability and longevity.
The business plan is normally the first step in the planning process and those that continually review their plans and compare them against actual results are running a finance function. The type of reporting required to grow a business is independent from the year end accounting process that is used to submit information to HMRC and companies house, here we are talking about regular management accounting which provides information to entrepreneurs and directors that drives the business forward.
During growth cycles in a business, particularly with businesses that offer credit to their customers, there tends to be a great deal of stress on cash flow and working capital, during this time an injection of funds is required. In a growth phase you are likely to need investment in infrastructure so that you can deliver your services/products reliably, this may include staffing, process improvements, and new equipment etc. Those providing funding to your business will look at a varied metric when deciding to lend to you, including your sales process and the quality of information provided by your finance function.
Cash management and forecasting will tell you where the gaps are in the future allowing you to do something about it in advance. The funding process from start to draw down of funds can take many weeks to achieve so forward planning is critical in avoiding financial distress leading to business failure. Increasingly lenders are keen to see businesses using some form of cloud based accounting solution as they know this improves processes and management information.
For the SME it is often the case that they don’t have the resources to take on a full time qualified finance professional.
At the Finance Equation Ltd we offer part time FD solutions to entrepreneurs, helping them through their growth phase. Our finance directors have hands on experience working with owner managed business and start-ups. We provide cloud based accounting using Xero or QuickBooks. Monthly management reporting, tax efficient startegies, budgeting & forecasting, cash management & forecasting, business plans. We have relationships direct with lenders that will look to fund your growth.
Mr Aadil Butt FCCA FRSA
Tel: 0203 086 7472