Keeping the financial score
Businesses don’t go bust because of a lack of profitability. They go bust because they run out of cash.
Sadly, many entrepreneurial businesses fail in their start-up and development phases and even mature businesses succumb from time to time. There are many reasons for this. Some businesses simply have poor strategies. Some are overtaken by the advance of technology. Others have poor management, often particularly evident in the financial area where entrepreneurial businesses can be prone to minimising or cutting ‘back office’ costs to the bone. Beware! This kind of penny pinching can often be fatal.
So while entrepreneurs are often 100% focused on achieving their wider goals, someone needs to be responsible for keeping the financial score.
It’s worth remembering that it’s not just bad businesses that run out of cash. Many growing businesses are consumers of cash and, perhaps counter-intuitively, cashflow difficulties can just as easily arise from increasing as opposed to falling sales.
So cash is king. This may be a cliché but only because it’s true. In order to build sustainable businesses, entrepreneurs must live by this mantra. They must effectively manage their cash in order to build firm foundations and keep their organisations in good financial shape.
In order to do this effectively, it’s not just the management of the incoming and outgoing cash that needs close attention. It’s also the management and control of a raft of other financial data. Effective financial management should not just help a business survive, but help it grow and prosper.
In this issue of enabling entrepreneurs we look at the basics for recording and tracking your financial results, and for businesses that have reached the next level and are ready for an FD, the FD Centre outlines the four key roles of a finance director.
For further advice or assistance, please contact me or your normal Smith & Williamson contact.