Business Financial Record Keeping
Mentoring a series of established and start-up businesses and participating in Dragons den exercises for the University of Brighton (where local business people assess business proposals presented by teams of students) has provided experiences that were satisfying and illuminating. The illumination is what I'd like to share with you now. It centres on financial record keeping. Judging by the common reaction, your eyes are now glazing over. Nevertheless I urge you to read on. If financial record-keeping is no more than a chore, you are in danger of missing a few tricks. It boils down to the complexity of business and the fact that other functions - product/service development, marketing/sales, and even human resources - are generally much more interesting than finances. Owners of small businesses may produce financial business plans only when seeking a loan - the lender requires it
How long since you reviewed your business plan?
I'm not an accountant. I find record-keeping as tedious as the next person. But, as a business strategist, I know the value of information in managing a business.
Tips for making the most of financial information
In conclusion. Maintaining financial accounts is a legal requirement. It has to be done, so why not make it work for you?
- Preparation ~ Firstly nothing is gained without sufficient financial detail. Plan what information you will need in the future and start to collect it, so that a history is available when you need it. Before actual data is available, best guesses will be better than nothing.
- Determining rates of pay ~ Unpaid work is often not taken into account. Make sure your income statement includes both paid hours and unpaid hours spent on travel, training, marketing/sales, records etc. Then you can calculate your total hours worked and whether your average hourly rate is enough. You may find that a £60 per hour fee equates to only £30 when unpaid work is factored in. When you know, you can make changes.
- Optimising income ~ If you have different types of work, it is wise to track your average hourly income for each [ie total charge less total expenses (paid and unpaid time, materials, travel) divided by total hours]. A comparison across different tasks will indicate whether to adjust fees or concentrate tasks with better returns. Example: If desired hourly income = £50, then a 1hour coaching session with ½ hour preparation and no travel should be charged at £50 x 1.5 = £75. A bespoke 1 hour seminar with 2 hours preparation and 1hour travel should be charged at £50 x (1+2+1) = £200 plus travel expenses.
- Reducing costs ~ By capturing expenses by task type financial statements will highlight the main expenses. Efficiency improvement initiatives can be focused onto areas that will generate the biggest returns.
- What if? ~ Once financial information is captured on a spreadsheet, it is easy to create a variety of 'what' scenarios. What happens if you increase prices by x with consequential impact on sales of y.What if the cost of materials increases? By exploring possibilities you are able to make contingency plans.