What does a growing business need from its finance function?

As a growing business it is hard to know exactly how much to invest in your finance function. Do you just go for the basics or aim further? Once you are sure that you are serious about growth (& by that I mean that you are a startup that is going to reach £1m in sales & when you reach that keep on going by at least 20% per year), I would recommend that you invest between 2.5% to 5% of your annual sales in your finance function. This % can fall once you get over £1m reaching <1% once you get north of £25m. Here is a list of 5 things that you should aim for every finance function to do. You can build from this as required. [line] 1. Ensure that you receive monthly management accounts within 5 working days of each month-end that cover:

  • Profit & loss broken down by the main revenue streams and cost types showing monthly split for the last 12 months
  • Quarterly profit performance for last 12 months compared to prior year
  • Balance sheet showing monthly trend on all key balances for the last 12 months
  • Cash-flow analysis showing the monthly trend for last 12 months
  • Aged debtors and creditors listings showing the total numbers of days of sales and purchases that these represent
  • If relevant, key stock lines with numbers of days of sales that these represent

2. Analyse profit by customer (or customer segment if there are too many) by month for the last 12 months.

  • You need to know who is making and losing you money
  • You can start by doing this quarterly but there are not many businesses where you do not need to be on top of this more frequently
  • You will need to be careful about how you allocate costs which are indirect to servicing a particular customers e.g. finance

3. Understand forecast cash-flow.

  • Without cash you will not be able to run your business
  • The frequency and time required for cash forecasting will depend on the cash headroom that you have available
  • Forecasting regularly will help you spot cash squeezes that you need to fund

4. Begin to develop performance indicators.

  • This is information that takes you behind the figures and measures the things that actually drive your performance. e.g. traffic to your website may drive sales
  • As far as possible try to follow “lead” indicators = Things that show you ahead of time what is going on

5. Put in place robust & efficient processes that look after the essentials. These are the things that you need to do to comply with the law:

  • Payroll returns that show HMRC that you are paying over the right amount of tax
  • VAT returns (for all UK companies with VAT taxable turnover > £82,000)
  • Annual accounts to be filed at Companies House
  • Annual corporation tax to be filed with HMRC
  • Maintaining proper accounting records to support all of the above.

Any or all of the above activities can be outsourced. In fact, initially it will probably make sense to do this. You can bring elements in-house as you grow.

Bellevue can partner with you to help run any of the above Our involvement can be flexed to meet your requirements and available budget. Please get in touch now if you have an issue that you would like to discuss.