Do you have adequate financial controls?
87% of the builders we’ve worked with had little or no financial controls when we started working together. By far the biggest draw back for our new clients is their lack of financial systems and a pricing strategy that relates to their breakeven point. This section will give you a basic understanding of the essential financial controls you need to run a profitable business.
Would you like the peace of mind of knowing where every dollar coming in and out of your business is going?
Having accurate and updated financial systems allows you to make more informed decisions. You’ll know your cash position on jobs and which jobs are more profitable and why. This alone could lead to better strategic decision making.
The Challenge: Lack of adequate Financial Controls
John has had always been a good electrician. His clients like him and they keep coming back. Finding the work has never been a challenge for John. His real concern is managing the money and having his financial ducks in a row, so to speak. John has been running his business out of his bank account and doesn’t make use of the five cornerstones of any solid financial controls namely:
- Updated Profit & Loss statements
- Balance Sheets
- Break Even Point
- Cash flow Forecast
- Debtors and Creditors System
John feels the tension in his shoulders every day and the migraine headaches come and go. Most days John feels sleep-deprived from a lack of quality sleep the night before. When he climbs into bed he has “monkey chatter”, those thoughts that keep running through his mind until the early hours of the morning.
John never feels like he gets a true break from his business. On weekends and holidays he spends time on the phone to clients or team members fixing problems. When he’s not on the phone his mind constantly races with what needs to be done or worries of what might go wrong.
So far it’s cost John a marriage and is starting to affect his health as well. It’s as if he can feel himself aging prematurely. What happened to business supposedly being fun he wonders?
John finally got some direction and learnt that getting his financial controls in place would not be as difficult as he thought. He just needed the right guidance and tools. Here’s the simple six-step process John followed:
A System for Managing Finances: The first thing John did was find a financial system that could capture his critical numbers. He quickly discovered the popular options were Quickbooks and MYOB. John chose MYOB for its user-friendly functionality. The program also came with easy to follow tutorials, which taught John how the system worked.
Outsourcing the Bookkeeping: The next critical step for John was to outsource his bookkeeping to someone who was familiar with using MYOB and who would spend a day a week feeding all the debtors and creditors information into the system. Having accurate financial information is essential and can only be achieved with accurate input. With this in mind, John made sure he found a bookkeeper with a strong reputation and solid reference checks.
Understanding the numbers: John soon learnt what the important numbers were for him to understand and review in his profit and loss statement. Namely:
- Total Revenue
- Cost of Sales
- Gross Profit
- Fix costs
- Net Profit
Reviewing his Balance Sheet every quarter became a regular event for John. John also set aside time to check his cash position on a weekly basis.
Once John was familiar with his Profit and Loss numbers he felt confident to start setting profit goals for the months ahead.
Break Even Point: By using the Break Even Calculator John soon calculated the Break Even Point for his business. He now knew exactly how much money the business needed to break even each day, week, month and year.
Cash flow Forecast: Next John started using a cash flow forecast. This was possibly the most powerful tool John had ever used to manage his finances. As opposed to just looking back at his numbers in retrospect, John could now look ahead at his cash position over the coming 12 weeks and make more informed decisions.
Debtors and Creditors System: John soon had his bookkeeper working two full days a week using the debtors and creditors system he’d set-up. As soon as any of his debtors went past 14 days, John’s bookkeeper would send an email reminder to them using a pre-written letter giving them a gentle reminder. There was also a letter and phone scripts for 30-dDay, 60-day and 90-day accounts.
Within 6 months of implementing the new financial controls, John reached a point where looking at his financials became his favourite part of the business. He couldn’t wait to see the latest figures and assess the results his new sales and marketing strategies had generated.
John knew exactly how much money was going in and out of his business to the very last cent. Having that level of control boosted John’s confidence and gave him piece of mind beyond measure. John’s financial information was now being kept neatly and meticulously in solid financials systems, instead of his head.
Tinkering with the numbers and making more informed decisions because of it, allowed John to see his business as a ‘game’. For the first time in years, John was having FUN.
For more specifics on how we can help your business in this area, contact us direct to book in for your free “Strategy Session” with one of our expert Business Coaches. Lets talk about your business and see how we can take you to the next level.