At the moment many small businesses are focused on growing their revenue however, they may find this extremely difficult unless they have adequate financial management in place. The best way to improve your business’ bottom line is to first look at improving how you manage the finance function of your business.

It’s easy to let the day-to-day running of the business become your top priority and hence keeping up-to-date and accurate accounts tends to fall by the wayside and is only hurriedly completed when BAS time comes around. Not having accurate financial information is like flying blind and makes it almost impossible to manage your cash flows, tax obligations and everything else in between.

Getting the financial management right will allow you to better plan, understand the ‘ins’ and ‘out’s of your business’ finances, know what areas of the business are performing and which ones are underperforming and will help you to make better business decisions. All the necessary ingredients you need to help you lift revenue and grow your business.

The core of good financial management is having accurate and up-to-date figures and a reporting function that lets you know how the business is truly performing.

The three key reports that you should be doing on a monthly basis are:

Profit and loss statement – tells you how well you’ve done over a period of time.

It is common to look at sales and net profit and not really go into more detail. If you want to get more value, then you need to get into the numbers more. For example, for product sales if you look at your sales less your cost of sales, this gives you the gross profit and your gross margin is a percentage of that. The comparison will tell you if the gross margin is going up, down or sideways over time. Regarding expenses a common question is, “how can we reduce costs?” A better question to ask is “how can we get more value for our cost?” For example, with advertising, ask how can your advertising partners get you more value, take your dollar further and get more impact in the market.

Balance sheet – tells you how strong the business is at a certain point in time.

The balance sheet is the backbone of any business. It sums up the overall business’ position   by identifying assets, liabilities and the equity of the business. Three key ways to strengthen your balance sheet:

1. Ensure your cash position reconciles each month so you know exactly how much cash is available to pay your liabilities. Your accountant should ensure that each item is reconciled every month and they should be able to support any item at any point in time so that you can clearly identify discrepancies  and fix the problem quickly and accurately.
2. Have an accurate balance of debtors so that you know how much money is available for collection and put measures in place to collect.

3. Be clear about your creditors, including money you might owe to suppliers but also your tax liabilities such as GST and PAYG.

Cash flow forecast – is a projection of your business cash inflows and outflows over a period of time.

Your cash flow forecast should be prepared monthly and extended out for the next three months as a minimum. The key to truly getting value out of your cash flow forecasting is to keep it realistic and make sure that all your expenses are covered including your liabilities to the ATO, repayments to banks, monthly salaries as well as general monthly expenses.  The impact in getting this wrong and having a cash crisis can be severe.

Preparing a cash flow plan will:

• Provide early warnings of potential cash shortages so corrective action can be taken quickly
• Identify if additional funds will be needed
• Assist in preparing requests to financiers for additional funding by demonstrating that the business can meet repayments
• Identify potential surpluses than can be invested to generate additional income
• Help manage your compliance obligations.