Put your business to the five-question test. How financially aware is your business?
It sounds like a simple question, but the answer has very little to do with the size of your finance team, or whether you have one at all.
For a micro business, financial management might sit with the owner and an external accountant. A growing business may have a finance manager or financial controller. A larger SME might have an established finance team and FD. But the test of good financial awareness is much the same:
Do you have the right financial information, do you understand what it’s telling you and can you use it to make better decisions?
Here are five questions worth asking.
1. Do you know where you’re actually making money?
Do you know which products, services, projects or customers are generating the strongest returns, and which may be taking more time and resource to deliver than they’re worth?
The answer might come from a relatively simple calculation or detailed management information. Either way, understanding what is driving profitability can help inform decisions about pricing, resources, sales and where you focus your efforts.
Do this this week: Pick one area of your business and look beyond its sales figure. What does it cost you to deliver, and what’s actually left?
2. Do you know what your cash position could look like three months from now?
Knowing how much cash you have today is useful. Knowing what’s likely to happen next is much more powerful. What payments are coming in? What’s going out? What happens if a large customer pays late, costs increase or sales don’t materialise when expected?
For some businesses, answering that might involve a straightforward cashflow spreadsheet. For others, it could mean reviewing a detailed rolling forecast. The sophistication of the tool matters less than the visibility it gives you.
Do this this week: Look three months ahead. Is there a point where cash could become tighter than you’d like? If there is, what can you do about it this week?
3. Do you know which number would warn you first that something is going wrong?
Businesses generate a lot of financial information. Not all of it is equally useful. The key is identifying the numbers that tell you something you can act on.
Depending on your business, an early warning sign might be falling gross margin, increasing debtor days, declining recurring revenue, rising costs or weakening sales.
Knowing your key indicators, and tracking them consistently, can help you identify potential problems before they become bigger ones.
Do this this week: Identify the three numbers that give you the clearest indication of how your business is performing. Are you reviewing them regularly, and does everyone who needs to understand them know why they matter?
4. Do you know what happens if your plan doesn’t go to plan?
Forecasts are based on assumptions. And assumptions change.
A customer delays an order. Recruitment happens earlier than expected. Costs rise. Sales grow more slowly – or more quickly – than anticipated.
Good financial awareness means understanding not just your expected scenario, but what different outcomes could mean for the business.
You don’t necessarily need to model dozens of possibilities. Even asking one well-chosen “what if?” question can expose a risk or give you greater confidence in a decision.
Do this this week: Take one important assumption in your current plan and challenge it. What happens to your cash and profitability if the reality is different?
5. Are your financial reports helping you make decisions, or just telling you what already happened?
This may be the most important question of the five. Financial reporting has limited value if it simply tells you what happened last month, last quarter or last year. Useful financial information should help you decide what happens next.
Can we afford to recruit? Should we invest? Do we need funding? Is our pricing right? Where are margins being squeezed? Can the business support the next stage of growth?
As businesses grow, the financial information needs to grow with them. Systems, reporting and forecasts that once worked perfectly well can become less useful as the organisation becomes more complex.
Do this this week: Take your latest financial report and ask one question: “What decision does this information help us make?”
If the answer isn’t obvious, it may be time to rethink what you’re measuring and reporting.
So, how did your business do?
Could you confidently answer all five? If not, that doesn’t necessarily mean you need more spreadsheets, more reports or more financial data. You may simply need to make the information you already have more useful.
At BIC Innovation, we work alongside SME leadership teams to bring greater structure, clarity and realism to financial decision-making.
That can mean strengthening financial planning and forecasting, improving management reporting and finance processes, providing experienced fractional financial leadership or helping a business prepare credible financial information and supporting evidence for conversations with lenders, investors or grant funders.
Our experience spans growing SMEs, investment and public sector funding programmes, giving us an understanding of both the financial pressures businesses face and the evidence decision-makers need when funding and growth choices carry more weight.
For businesses preparing to raise equity investment, our Pre-Investment Support can also provide an independent view of the proposition, helping founders understand where their pitch and supporting evidence are building confidence, and where investors may challenge or hesitate.
Want to get closer to your numbers?
Whether you’re managing the finances yourself, working with an accountant or already have an established finance team, there may be opportunities to make your financial information work harder for your business.
If you’re an SME and want to improve your financial awareness, get in touch with BIC Innovation.
We can help you understand where you are, identify what needs attention and make your financial information more useful for the decisions ahead.
