How Do You Know You Have Had a Good Day Financially?

Most Business Owners rely on guesswork and their intuition to determine whether they have had a good day, a good week or a good month in their business.

It is a question I like to ask when I first meet a Business Owner.

We have been really busy; we have had 60 men on site; all of our equipment is out on hire; the phones are ringing non-stop.

I have heard these explanations, and many more.

Why Guesswork Doesn’t Work

I have worked with some Business Owners who use this method, and it has worked for some of them.

To a certain extent.

Whilst these instinctive responses can occasionally relate to the actual performance, in my experience, it bears no resemblance to the cash position and the financial performance of the business.

It is not an effective way to manage your business.

Focus on Results, Not Activity

Activity does not equal profit, and it certainly does not mean significant net cash inflows. Key financial and strategic decisions should not be made based on guesswork, instinct or hope.

How can effective and appropriate decisions be made without Knowing Your Numbers and the full financial picture? In all honesty, it can’t.

Effective financial systems are key for managing financial performance and working capital. They are also important with respect to company valuation and finance raising.

With the right financial information, we can make decisions based on reality.

We can forecast and predict based on that information and the expectations going forward.

Looking forward is key for me. However, to move forward we must know where we are now.

Think of a map for a journey.

To reach the destination we must have a starting point and an intended direction of travel, as well as fuel for the journey.

Relating this to financial management:

  • The management accounts are your starting point.

  • The forecasts are your intended direction of travel, your map.

  • Cash (and/or suitable working capital facilities) is the fuel to get you there.

Ensure You Have the Right Information and Understand It

I like to work with the Business Owner to create the financial information so that we can precisely determine if we have had a good day, a good week, or a good month.

It allows us to monitor, manage and influence performance.

This then allows the Business Owner to make key decisions based on fact and expectation based on information.

This is usually done by creating daily, weekly and monthly Key Performance Indicators that measure performance, profitability and cashflow.

Using this information, the Business Owner can make decisions on investment, recruitment, capital expenditure and many other things, and can do it from a position of knowledge.

Not guessing. Not intuition. Just Knowing Your Numbers.

Do you Know Your Numbers?