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Knowing how to manage your business through these uncertain times is arguably one of the key skills that all business owners need today, but few may have. Here Bernadette McGrory Farrell of W.O.McGrory & Co has outlined some of the main points you need to be aware of to know you are successfully managing your business.
Firstly, know what stage your business is at, know what information you want to have at your fingertips, and be willing to work with your accountants, not against them.
So, what stage is your business at?
If you are still in the start-up phase, 1 to 3 years, typically you are
If you are in the 3 to 5 year stage, typically you are
If you are in business between 5 to 10 years, typically you are
Recognising which stage your business is at is crucial to knowing what information and support systems you need in place to successfully manage it. Your accountant is the single most important element in putting in place a workable effective control system for your business.
So how do you deal with your accountant?
Do insist on jargon free explanations of all financial information
Do be clear what the key cost and income drivers are within your business and ask to have a simple financial recording system to monitor these key figures
Be willing to keep detailed records of all transactions in the business
Keep your accountant informed of all developments or changes within the business
Be willing to set annual/quarterly targets and to monitor progress
Provide your accountant with accurate stock/work-in-progress figures for management accounts
Your accountant should be providing you with
Remember, a one-page summary of the key figures in your business is all you need on a monthly basis, you don’t need management accounts running to 6 or 7 pages simply because it is easier for your accountant to use the same format as the annual accounts. Have a one page report, which tells you what you need to know. Your accountant will help you decide what is most useful for you.
Here is an example of what you might use as a one page report. But design your own, make it exactly what you want for your business.
Summary of Critical Items for Financial Management Information
Current Year Previous
Period to Date Year to Date
Sales net of vat
(by key analysis if relevant, e.g. geography/produts etc)
Cost of Sales – analysed over key items
(e.g. Materials, production wages, consumables etc
each expressed as a percentage of sales)
Gross Profit and GP percentage
Key overheads (as a percentage of sales)
Net Profit (as a percentage of sales)
Stock Holding Days
Bank Loan repayment/balance
The above is a list of the standard items which should be on a one page summary of your financial information. If you prepare budgets each year then a column for budget and variance from budget should be included. In looking at the range of information which different businesses want to have included on a financial management report, the key is that if it is relevant to your business then include it, if n ot leave it out. The main thing is to keep it simple, otherwise it won’t get done.
Check out www.mcgrory.ie for more advice on this.