Many small business owners that I have worked with have big goals for the growth of their companies. Building a strong financial foundation can support those plans, help create opportunities and protect their organization from unnecessary havoc and anxiety. Here are six questions I’ve asked as both a former CFO and financial consultant to help get this process started.
Are your “books” complete?
Is all your financial information accurately entered into your accounting system on a timely basis? When reviewing business financials, I commonly discover that important entries are missing or have not been kept up to date. Examples include company credit card activity, payroll taxes, inventory or accounts payable.
It’s easy to make poor strategic decisions when you don’t have a complete picture of your finances. For instance, I’ve seen business owners spend money on new equipment because they looked at the bank balances and thought there was a cash surplus only to suffer a severe cash crunch because they did not realize there were outstanding checks and other bills coming due. If the books aren’t complete, dive into the reasons why and solve those problems.
Are you following a budget and strategic financial plan?
This is an important exercise that can provide valuable information and support your business’ growth. Some tips:
Examine your cash outflows. Are these reasonable and expected? Do you see any anomalies that need to be investigated?
Look forward and forecast. How might your finances change? What expenses may increase or decrease? Do you have any large payments due? What do you anticipate your revenue will look like? How can you plan for asset purchases needed to grow your business?
Review your debt. Is it manageable and supporting the business in a positive way? Do you need or want to implement a debt reduction plan?
Are you watching your cash flow?
It is true – cash is king. If you have ever suffered a cash crunch in your business, you know that it can create a lot of anxiety not just for you but for your whole team. Have you checked your accounts receivables lately? Are you getting paid on time? Do you have a lot of clients long overdue with their payments? When a business owner has no idea that their accounts receivables has gotten out of control, this can easily put them on a course for severe cash flow challenges in the future.
Are your financial reports giving you the right information in the appropriate format to make strategic decisions?
Let’s assume you have three service locations for your business. Are you looking not only at the overall business’ financial picture but also individually, by location? You may have one location that is a high performer and the others operating at a loss. What can you learn from this to strengthen your business and maximize your revenue at each location?
Have you reviewed your income streams and profitability?
Is your business too heavily dependent on a specific client? Diversity of revenue is crucial – businesses have plunged into severe financial hardship when a large client either became unable or unwilling to pay what was due. Are you also regularly reviewing the profitability of your goods and services? It’s not uncommon to discover that a service or product that had been lucrative in the past is now a losing venture and needs to be adjusted to become profitable again.
What about your financial safeguards and backup plans?
What measures do you have in place to reduce or eliminate the risk of having money or goods stolen from the business? What have you done to prepare for emergencies? These might include an area-wide disaster or one that impacts your business specifically such as a fire in your building. Do you have the appropriate business insurance coverages? If the business is unable to operate due to a disaster, do you understand what your insurance will cover? What about backups of your financial and other data?
Use these questions as a starting point to help strengthen your financial foundation. Combine this with taking the time to perform regular financial check-ups on your business as well as assembling a team of reliable financial and accounting professionals both internally and externally. This will help fuel the growth of your business and help you maximize opportunities along the way. In addition, I often hear that it helps owners sleep better at night. And that’s something we could all use.
Cynthia Boman Thompson is vice president of Client Relationships at Cinder Staffing. Cinder Staffing works with clients on everything from crafting a business plan to strategic financial planning, monitoring financial results, creating compensation plans and expanding your business.
