I am often asked by clients and prospects what makes a successful business. In thirty-two years of being in business and the past seven helping and advising other business owners, those three words: clarity, confidence and conviction are the essential ingredients for achieving continuous growth and increased profitability. Without clarity, you cannot have absolute confidence in your decisions. A lack of confidence will inhibit your conviction to take a business forward. Indeed, they have to work in conjunction with each other. Otherwise, failure and stagnation will be the inevitable outcome. It may be a sixth sense or just experience, but I can gauge very quickly where a business resides on this scale.
Accountants reading this will recognise a typical scenario where a business has plateaued, finding it difficult to go to the next stage and also having the appetite to do so. The company are consistently profitable but haven’t progressed for several years. I associate that position with a lack of clarity, which if left to fester, can be destroyed by increasing overheads and reduced confidence in the individual.
‘Do YOU have a full appreciation of YOUR business finances and the critical knowledge of how to take your business forward? Are you financially, literate?’
How to find your clarity
Firstly, it is essential to look at the current trading status of your business. The cost of sales, labour, overheads, gross and net profit margins are the vital elements. Looking for clarity by analysing your management accounts measures your past performance and should be available no later than three weeks after your month-end. You can quickly uncover essential KPIs that give you the desired degree of financial transparency and control. However, that is only the start of the process, and in reality, it’s where business owners very often stop. They forget to measure their ongoing performance. Having a clear understanding of your objectives as you grow, and the impact of every financial decision you make requires comprehensive analytical tools that enable you to monitor and measure continuous expansion. If not, costs can quickly spiral out of control, and before you know it, a lack of cash in the business becomes extremely painful and in some cases terminal.
Forensic financial management is a critical part of maintaining stability, especially when a business is rapidly expanding.
It’s not about fear; it’s about clarification.
Fear of a financial situation or not knowing your financial status is untenable and inexcusable. Too much anxiety, and hiding from reality, very often turns into a complete lack of focus and decision paralysis.
My clients whom I recommend to each other, appreciate that they understand how much it costs to operate their business to the minute; also the importance of what the detail means to them and the confidence it imparts in their decision making when identifying investments in their companies.
The exciting aspect of monitoring finances is uncovering the potential for higher profits, or areas where the business could do so much more by strengthening its offering. I rarely come across a company that doesn’t have the immediate potential to make significant internal improvements without having to make wholesale changes and incur increased expenditure first.
Clarity takes on all forms, not just reserved for the financial aspects of your business. It would be revolutionary if you had this level of detail in every area of the company to maximise the potential: Operations, sales and marketing, administration, logistics, customer services. However, financial clarity is an excellent starting point for every business owner who is currently feeling they are not quite in control, or has an element of fear when looking to invest and grow their business.
My promise to anyone reading this article, gain that financial clarity, it will give you the insight, knowledge, confidence and conviction to take your business forward.
Learn more about Stuart Allan and his business coaching.