Building your Finance Capability for Better Business Decisions

 In Blog, Finance, Leadership

Life in small business can feel pretty chaotic. You’re wearing several hats working on a hodgepodge of tasks and priorities. With all this going on, how do you make the best and most informed decisions for your business while understanding the risks and potential outcomes?

A strong finance capability is key to better business decisions. Without the key data provided by strong financial analysis, making large business decisions can feel like plucking something out of thin air.

Before the Foundation is In Place

What we often see when we start an engagement is:

  • Year-end accounting only
  • Over-simplified bookkeeping and G/L
  • Automated reports with no adjusting entries
  • Behind on:
    • Invoicing
    • Accounts Receivable/ Accounts Payable
    • Remittances
    • HST
  • Cashflow issues
  • No standard financial reporting
  • No forward-looking analysis

We see so many companies who are trying to figure out how and when to make a decision without the right data and metrics. Often companies who haven’t yet reached level 1 (in the chart below) try to make decisions that require level 3 insights!

Understanding Your Numbers

Building the Foundation

So, what do you do?

You take steps to truly understand your current and future financial states.

Like any building, begin with a strong foundation. Work with a skilled bookkeeper to set up a proper General Ledger (G/L) that is designed around your business. Get caught up on outstanding transactions (e.g. Accounts Receivable (A/R) and Accounts Payable (A/P) and remittances and establish minimal reporting. You might also want to explore new technologies that create efficiencies in managing finances. Some of our favourites are Hubdocs, Quickbooks Online and Plooto but there are many other good options out there too.

After the Foundation is In Place

With the foundation in place, you are then able to track your cash and begin working with your finance team (controller and/or vCFO supported by a skilled bookkeeper) to build processes and reports that support current and future business. The tools used: forecasts, budgets, cash flows and monthly reports, provide a higher level picture of your business and what decisions you want to make moving forward. For example, now you have the data and knowledge to understand your next hire or what products sales teams should focus on selling.

With the foundation, processes and reports in place, you can now take your financial analysis to a new level. With the help of an experienced vCFO, you can begin looking at creating and reporting on higher level data. This could include looking at your margins, choosing key financial indicators to gauge the health of your business and implementing month/ quarterly/ yearly business reviews. Once here, you can make well informed big picture business decisions. Were you thinking about buying some real estate? Acquiring a company? Expanding to new markets? Well, now you know what you can or cannot do.

Take Aways

No business decision can be completely free of risk. There are variables beyond anyone’s control. To make the most informed decision you can, focus on what is in your control.  Build a strong financial foundation, implement key processes and reports and work with your team on financial analysis. It takes time, focus and the help of a few professionals. Trust us, you will be grateful that you took the time to implement these practices the next time you need to make an important decision.

About the Author

Katherine Clarke-Nolan, Director of Delivery and Engagement, specializes in facilitation, strategic planning, governance and change management services that focus on helping organizations strategically transition and transform, resulting in more engaged and innovative workforces. She currently plays a leading role in guiding and supporting the Business Sherpa Group finance team.

Business Sherpa Group

Strategic and operational professionals providing flexible business solutions for SMEs.

Explore the services we offer or contact info@businesssherpagroup.com with your immediate needs or simply if you’d like to chat; the first coffee is on us!

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