Expert Eye: Simon Shaw of Duncan & Toplis talks about how understanding your financial position is crucial to any successful business

Having a clear and up to date understanding of your financial position is crucial to any successful business, writes Simon Shaw of Duncan & Toplis.

But how do you know you are on the right track whilst doing the “day job”? Business growth is exciting, but often comes with growing pains along the way.

Having a robust and accurate financial reporting and forecasting system in place is going to give business owners the information they need to make the right decisions for future success.

The phrase cash is king is as important as ever to ensure a business has sufficient cash available at the right time to meet its commitments and have the funds it needs to grow. Having real time access to the businesses current cash position is the starting point to cash management. This needs to be extended to a short-term cash forecast so the business understands it’s outgoings in the days and weeks to come, and when it will receive money from its sales. This will also highlight any action needed to chase customers who are not paying on time and if needed, schedule payments to suppliers.

The cash flow forecast must also extend beyond the coming days and weeks to provide a longer term view of the cash requirements. This forecast will include the impact of growth, for example the need to hold more stock or invest in new equipment and identify where borrowing is required to finance this growth.

In any business there is likely to be others who need to be aware of the financial performance and future budgets. Having an effective way of communicating the relevant financial information to others in the business in a timely and consistent manner will help all involved in the business contribute to its success. Employees are often also a good source of ideas to help improve the efficiency of processes which will improve business operations and profit.

The reliability and time taken to pull together the financial information needs to be considered. There may be others in the business who have the skills and experience to help with this. Making the most appropriate use of these skills will reduce the pressure on the business owner and develop those employees to be more engaged in the future of the business.

The difficulty many smaller business owners have is that they might not have the time and skills themselves to keep on top of the financial performance of their business, and don’t have the right in house resources to assist them. This might mean that outsourcing some or all of the financial functions of the business would give the business the information it needs without the need for additional recruitment or training.

Outsourcing can be tailored to the specific requirements of the business and can range from one particular part of the system, for example employee payroll, right through to the entire finance function including such things as supplier payments, management reporting and forecasting. Businesses often find that the investment in outsourcing some or all of their finance function provides not only additional time for them to develop and grow the business, but also a wealth of knowledge and business experience. Having access to these skills will help the business make the right decisions during a time of growth.

Although outsourcing can be very helpful to smaller businesses, many larger businesses also make use of outsourcing to complement their in house team and provide regular valuable external insight to benefit the business.

As a company grows, the objectives and strategy of the business will often change or evolve. Set time aside to redefine your goals and brand values, and time to communicate them with all employees. To keep employees engaged and motivated it is important to be transparent about what you are trying to achieve, how you plan to succeed and what their roles are in helping the company to reach its goals.

Growing pains are common in any business but by planning ahead to identify problems and taking steps to manage or prevent them, you can keep your business on track for continued growth and success.