One of the first questions I ask any potential new client who wants me to provide help for their IT business is “What is your current turnover?”. Unfortunately, a great many business owners don’t even have a rough idea of the financial situation of their business.
“My accountant knows my finances”
They might, once a quarter – or even once a year – bundle a load of receipts, bills and invoices and pass this to their accountant, who comes back a few weeks later and tells them whether they’ve made a profit or a loss.
Some owners have a rough idea of how their business is fairing financially, but can’t tell you on a week to week basis what money they have, what they owe and what they are owed. This leaves them in danger of some nasty shocks – how accurately can you gauge business success on gut instinct alone?
Ultimately, a good business of any size will have regularly produced management financial accounts – which gives the stakeholder (and any interested 3rd parties – such as vendors and distributors who you are requesting a line of credit from) the ability to gauge where their business is financially at any time.
Creating weekly financial report
But one very useful technique I teach IT business owners is to start the production of a weekly financial report.
The weekly financial report should be a very simple “snapshot” of certain measurables within the business. It might contain five numbers as simple as:-
- Total cash in the bank
- Total amount of bills due for payment
- The current VAT or local taxes liability
- Total amount of invoices outstanding
- Total amount of invoices now overdue
This report should take no more than 5 minutes for somebody to regularly prepare, and should be distributed to the stakeholders within the business to make them aware of the current state of the business.
If you’re the only stakeholder within your business, don’t produce the report yourself (because I can tell you that it will never actually get done) but ask your book-keeper to produce this report and e-mail it to you every Monday morning.
What can be measured can be managed
There is an old phrase I’m very fond of – “What can be measured, can be managed”.
By producing a regular weekly financial report, you’ll start to take a keener interest in how your business is actually fairing.
- You will no longer be surprised at the end of the quarter when you don’t have enough money to pay your taxes.
- You will start to question why you are owed so much money and ask… nay demand, that people pay you on time!
- You will start to pay your suppliers on-time
And ultimately, when someone asks you the question of “What is your turnover” you’ll find you’ll be able to give them a more accurate answer rather than a finger in the air approach.
The goal of a weekly financial report is not to turn you into an accountant overnight, nor will it give you the truly key metrics you need improve to really grow your business, but for those of us who are more interested in doing the work than counting the pennies, it will help you to by beginning to open your eyes to how your business is actually performing.