Everyone in business plans to make a profit, but how do you know if you are making a profit? Do you wait until the end of the year and give a pile of invoices and receipts to your accountant? You also need to ensure that you have enough cash available to pay your debts as they fall due. How do you know whether you are in that position? Do you just keep your fingers crossed? Or do you address both of these issues by keeping track of your financial position on a regular basis?
This section will give you an overview to the legislation around finance in business. However, since this is one of the areas which small businesses often get wrong- we would strongly advise that you get professional help if you are in doubt.
Some form of budgetary control is essential to all businesses. In essence, it is the process of controlling available resources to achieve pre-agreed targets - the operational plan. Budgeting should not be seen - or used - as simply a cost-cutting exercise, identifying areas where savings may be made. It is the management process that orders all areas of the business to work in harmony so that the over-arching objectives may be met.
It is essential that you have firm control of your business finances. You need to be sure that you know how you are performing and that you are aware of how much you are owed, by whom, and for how long the debt has been outstanding.
Objectives
The aim of this section is to explain how you can achieve and maintain effective credit control. It will help you to:
Financial control is a major contributory factor to business survival. For many managers, exercising effective financial control is, at best, seen as a mystery and, at worst, not even considered. Yet monitoring a small number of important figures can ensure that you retain complete and effective financial control.
Financial forecasts are, quite simply, your forecast of how your business will perform financially over, say, the year ahead.
Preparing forecasts will help you to assess your likely sales income, costs, external financing needs and profitability. Financial forecasts are essential if you need to raise money from a third party, such as a bank. But they also provide you with the means to monitor performance on, say, a monthly basis and thereby exercise effective financial control - arguably the second most important management function in running a business.
Every business needs money - for capital investment and to provide working capital. Some people have enough money to invest everything themselves that the business requires; others have nothing and expect to borrow everything. Some recognise the need to raise equity from third parties. Banks are cautious and want to lend as little as possible - and expect to see a modest level of gearing. Money from different sources has different costs - partly reflecting the different risks. How do you decide which is the best source? And how do you achieve a reasonable balance between different sources?
Owner managers today need to be able to understand finance; leaving everything to an accountant is easy, but isn’t practical. The basics of finance are worth a bit of effort to learn and understand, as you can glean invaluable business information.
Objectives:
Effective control requires effective planning and target setting but it also requires an understanding of financial statements and an ability to interpret the figures. This section explains:
The Financial Action Planner (FAP) will help you to: develop your all-round financial skills, learn more about a range of financial issues, identify suitable sources of finance, create a set of financial forecasts and test out different financial scenarios.
Grants are financial assistance for specific projects, eg the production of promotional materials or the restoration of a shopfront. The obvious benefits of grants are:
• they don’t have to be repaid, unless you fall foul of the grant criteria!
• they cover some of your project costs, so free up money to be spent in other areas of your business
