Understanding Your Business And Planning For The Future

Many businesses start with a great idea and grow organically for a few years, making the most of opportunities that arise without a clear plan, and as long as the cash flow is okay, only looking at the accounts once a year when the accountant pulls together the annual accounts or a tax return. But there frequently comes a time when this doesn`t seem to work as well. Growth generally means increased complexity, and suddenly you`re not sure which opportunities to focus on, not sure if you`re actually making money as you thought, and can`t quite put your fingers on the information you need to manage the business.

There are some tools that can really help you to overcome this phase:

1) Creating a spreadsheet model of how your business works. Excel has many functions that allow you to model accurately, based on variables, targets, costs, volumes etc. You can model: how time is spent on various aspects of work to help you plan staffing how sales activity is leading to new business how variable costs will change with growth etc. Modelling the business will help you to work out what work is possible in the next months and years, and what the accounts are likely to look like. You can then set a budget much more effectively, alongside an action plan with milestones, targets and `key performance indicators` to drive your own and your team`s work.

2) Setting up a good accounting system. Using software like QuickBooks Online, you can see not only summary reports of the income and expenditure as the year progresses, but can split your operation into different departments or projects, and into different locations or sales teams. You can then compare different teams in terms of their effectiveness, or different areas of your business in terms of profitability. A good system means that you can not only look at the big picture, but also drill down to look at the detail - so that from any report you can go right to the detail of the original transaction, and if necessary, look at the actual invoice. The key to this working well is ensuring your chart of accounts and the codes you use for different areas of work really fit your business, and of course training staff on processing all transactions in a consistent manner, with regular reconciliations and checks.

3) The magic happens when you put the two together. You can produce reports of your actual performance and compare them to your budget, and if you keep your business modelling tool up to date, you can also see where you are heading financially at any point in time. Meanwhile, reporting against your action plan, you can see if you are where you thought you should be by this stage, and fine tune the action plan to put things right if not.

Learning how to do all this is not difficult. For most small to medium sized companies, about 10 days of analysis, implementation and training (alongside getting the right software, which needn`t be expensive), perhaps spread over a month or two, is all that is needed. Once you`ve got the tools and systems set up, you can keep on top of it yourself, without the need for expensive ongoing professional fees.