..a financial pyramid to improve your business step by step..
Pyramids get a bad press in finance (..perhaps due to Messrs. Ponzi and Madoff..), but this one shows how you build financial confidence from the bottom up.
Any lender, investor or potential acquirer will need to know that you are in control of all 5 steps BEFORE they give you any money.
➡Step 1. Systems and Controls
This could range from range from online banking and spreadsheets through to a full ERP system.
At its most basic level – what checks do you have to know where your cash and assets are?
➡Step 2. Transactions
This seems pretty basic, until it goes wrong:
❌if sales invoices are wrong – run out of cash
❌if purchase invoices are wrong – run out of cash and lose control of your margins
❌lose control of stock – run out of cash
❌lose control of your taxes – a nasty surprise form HMRC
✅keep the daily focus on transactions, measure your key metrics, and automate to reduce mistakes.
❌..but without Step 1, transactions will quickly spiral out of control
➡Step 3. Reporting
Starting with monthly management accounts:
❔how much did we sell?
❔how much money did we make?
❔how much cash/headroom do we have?
Then:
compare to target and previous period
add on metrics and KPIs as you develop
and trend the key numbers for your business
❌.. but without Step 2, the reporting is meaningless, and everyone loses confidence in the numbers.
➡Step 4. Forecasting
Planning the future:
❔Where do we want to go?
❔Where are we going at the current trajectory?
❔What actions do we need to take to bridge the gap?
❔Do we have enough cash?
❌..but without Step 3 (where we have been), we can’t plan where we want to go.
➡Step 5. Insight
The bit everyone wants to get into..
Using our numbers, analysis and plans:
✅to identify trends and commercial opportunities
✅to prioritise
✅to decide where to invest
✅to decide on best sources of cash and capital
✅to make better business decisions
❌ ..but without Steps 1, 2, 3, 4, any decisions will be based on flawed logic.
Build up from the foundations to ensure you have strong finances (and enough cash) for the future.
The above may fill you with dread, worry, or anxiety (ie if you are normal).
If so, contact me (Sam Wilkinson) to see if Stamford CFO can help.
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#financepyramid
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