I spoke to a client the other day who runs a marketing business. His company was set up two years ago, has 20-30 SMEs on its books and is, for all intents and purposes, a successful concern. However, his constant worry is cashflow. ‘Joanna, I’ve no money in the bank and over £10k owed in outstanding invoices!’ For him, the situation never seems to change month on month. Cashflow can be a killer to SMEs, especially if they don’t understand their financials.
Part of my role as a business coach is to stress the importance of understanding financial statements for SMEs. As a business owner it’s imperative to know the state of your finances on a weekly, or even better on a daily basis. Unfortunately for a lot of business owners, a type of ‘mind fog’ descends as soon as finance or accounts are mentioned. These chaps are intelligent, resourceful people who can understand highly-complicated ideas, but rather like someone explaining astro-physics to you over the dinner table, the concepts might be understood at the time, but will they be remembered the following week? No chance.
One of the most fundamental roles as a business coach is that it is imperative that ideas like this are communicated in a way that is easily understood and ‘sink in’. If it can be stressed that a Profit and Loss (or Income) Statement is not a complex chemical formula but a ‘Diary’ of your companies expenditure it can make it easier for business owners to get a grasp on the concept. Simply put, the Profit and Loss statement is where one can determine the Companies level of income because amounts received from selling goods and services are matched against all the costs and expenses incurred in the delivery of these goods and services.
Similarly, if a Balance Sheet can be communicated as a ‘photograph’ of a companies financial position at any given time (i.e. as of 1st of April 2016) the concept is more likely to be understood than by describing it as a ‘statement on the financial resources (assets) available to the business to carry out its economic activities as well as claims (liabilities) against its resources’.
As coaches we have to be able to get past the Mind Fog, because the message needs to permeate that companies who take study of their Balance Sheets, Profit and Loss statements and Cashflow on a regular basis have a better understanding of their financials on a monthly, weekly and daily basis. They are better informed and can make better decisions when it comes to improving cashflow and growing their business.
Contact me now if you would like tools and the coaching to understand your business financials so you can make better decisions as pain FREE as possible. Don’t hesitate to get in touch on 07949666562 or via e-mail at email@example.com
Oh – and as for invoices? I can recommend systems which will help to automate your invoices, send out reminders and systemise the financial side of your business. Make your life simple!