financial-forecasting

Anyone running their own business needs to be on top of finances. Cash flow can make or break a company, and it’s important that you always know exactly where your money is, allowing you to make the best returns and most profitable decisions.
When running Pacific Direct, I had a monthly Misery Day where I went through the company finances in as much detail as possible, so that I knew what was going on. You might think that a little excessive, but I managed to avert errors, get a real feel for momentum, sense check whether we were pushing our luck and know looking forward where we needed to convert business priorities…

Nowadays in business I am not quite as “hands on” as in my Pacific Direct days – but I do still keep a close eye on finances. I ask my business managers for two sets of financial reports each month:

  • On the 3rd day of the month I ask for final sales figures for the previous month, broken down into ideally the identified sales channels, by sales person, cummulative against target both monthy and annual. If systems allow, by profitability not turnover. Plus separate ecommerce sales figures against target, with Amazon reported separately and special projects perhaps as an exceptional line item with total against target.
  • By the 10th of each month I ask my business managers to produce a profit & loss report, a detailed cashflow and a balance sheet of actual figures against budgeted monthly and cumulative figures plus any anomalies, contract renewal timing reminders and other critical performance data such as debtor and creditor days and any major large deliveries, or indeed cash requirements looking ahead as exceptionals.

We all know the saying: “what gets measured gets done.” It is vital that we measure our financial progress. Also when we set measurements, indicators and ultimately goals for staff to achieve, we must make sure we target the things we actually need done, rather than just random figures that might be easier to report on or produce a pretty graph – and that we measure it.

Set aside a time every month (book a self diary apppointment) to discuss performance against targets; this is a critical feature of the processes you need to set in place as you grow. Each person in your organisation must have accountability for what they are doing. Similarly stock forecasting runs off sales data capatures on potential growth and impact to stock selling through.

This doesn’t mean pounding the desk demanding to know why someone hasn’t hit their targets; rather it is about looking at what the target was, what was done to achieve it, what may have hindered performance and what we expect to happen next month. Learning from lost opportunities, delays, and checking the pipeline is really qualified, understood and the partnership relationship is real and growing in momentum along the decision making line. The percentage chance consistency of a language in a business I think is an easy way for all parties to speak the same language. In my language, having a 50% chance means we qualified, quoted and are in discussions with the potential customer as to the the suitability of the proposal. Alternatively 70% means we are probably down to the last 2 in decision making and we are negotiating to win the deal and know where we stand.

Big transformational opportunties can impact so much of a company’s potential and yet again the cash burn rate is also vitally important. This allows you to make sound sales decisions with financial control in place. Keeping on top of this will stand you in good stead with any bank should you need their help; it is critical in allowing you to make the most profitable deals (assuming you have growth in your pipeline of opportunities converting – when you are really on top of sales and accelerated growth this will happen).

You should always know your cash availability at the shortest notice, in case you come up against something unexpected. But cash availability is not enough; you also need to know what is expected in the next few weeks.

In terms of sales reporting, this is what I would usually ask for:

  • Total number of invoices raised
  • Average invoice value month on month – hopefully this will show where upselling/accessorising has provided an uplift in average order values
  • Sales broken down by country where you are exporting (if not, why not?)
  • Sales broken down by sales person / by profit / by number of invoices and even by range of products to see if there is any bias or lack of sell through indicating a requirment for training?

With all of this said, there should be no measuring for the sake of measurement; choose carefully what you want to report on and stick with just that. I’ve seen companies with endless pages of monthly reports that show little and mean even less to the person reading them. If you measure every tiny detail of your business your staff will be so crippled by reporting they won’t have time to actually make any progress.

Written by Vicky Charles

Comments are closed.