Want to scale up? Get your financial information right
10 November 2016
Consider the following:
A company concentrating on selling its least profitable products. A firm that continues to take orders from customers who owe money way past terms. Failures of inventory leading to a loss of valuable customers by not being able to deliver the right car part A restauranteur realising that customers haven’t been charged for drinks for the last four trading days.
All of the above are examples of horrible business scenarios, yet they happen all the time. They make life hard for owner/managers, and make scaling up a business nigh on impossible. And they’re all often down to failures of financial information. Ambitious companies must crack the nut of poor financial information. But how?
The fact is, most organisations are data rich and information poor. Many are full of information (and sometimes a lot of information) that’s bogus or out of date. Bad data is most often the result of bad processes, but few organisations make the connection between the two. But the performance issues and poor decisions that arise from bad data can cause external stakeholders (such as banks and investors) to lose confidence in the business.
If the plans are for the business to grow, it’s important for businesses to keep bad data out of the system and improve their performance in this area by:
- Looking closely at governance. This often starts with the question, who owns this data? Even in a small company, you may find multiple answers to this question. IT; operations; finance? There needs to be a discussion and decision around who is ultimately responsible before things can improve.
- Understand how good the data needs to be. Perhaps it can’t be perfect, but what are the metrics that matter for your business and your strategy/plans. It may also vary from industry to industry.
- Ask what behavioural and cultural changes are desirable within the businesses to make the company produce sustainably good financial information on which to make its decisions.
Some start-ups don’t collect data for the first few years. Many entrepreneurs still run things on gut feel rather than solid financial information. This is changing somewhat, with the digital age ushering in a new cohort of owners, managers and investors who very much want to see the numbers before making decisions because they know that, in today’s business environment, gut feel is rarely enough.
And they’re right.
This blog is part of a series from My Financepartner. My Financepartner is an accounting service for small and medium-sized businesses that puts you in control. You choose the services that you need, module by module, and we'll deliver them.
For more information contact Luke Streeter