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The Importance of Financial Clarity

by | May 29, 2019

The Importance of Financial Clarity

96% of UK businesses fail within the first 10 years. There are many reasons why UK businesses crash and burn at this alarming rate. Many business owners struggle, get frustrated, and lower their expectations because they don’t have the skills and tools to really see what’s going on with their business numbers.

What is financial clarity?

What does your cash flow look like? Do you have enough cash to pay your tax bills? Where are you leaking money? Is your team working at full capacity? What is your net profit? What do you need to do in order to create a successful, sustainable business? Like a pilot, business requires you to be able to read the dials but most people can’t. This is why you need financial clarity.

It is imperative that as a business owner, you have absolute financial clarity of your business performance. If you do not you should develop your financial clarity to improve your cash and profit.

 

Invest in software that provides real-time information

business analytic computer software

Whilst historical information is required to assess performance against KPIs and benchmarks, as a business owner, you need to invest in software and tools that will give you accurate, real-time information of your financials so you can make strategic decisions. When you don’t see your numbers live you cannot identify issues that may significantly affect your future business success.

Real-time information doesn’t mean obsessing over processing receipts and tracking expenses, it simply means having the ability to monitor your business performance online at your fingertips. With powerful accounting tools, you can expect to benefit from simplified invoice and receipt processing, expense tracking facilities to spot any unnecessary subscriptions and reliable business forecasts to help obtain cash for development. All of these benefits allow for quick decision-making and ultimately provide you more time to spend on growing your business.

At GrowFactor, we take a fresh modern approach to accounting, so that’s why we are a 100% cloud-based firm with an ‘Online Only’ policy. All of our clients use powerful and efficient cloud-based tools including online accounting software to benefit from real-time business information. Until you have efficient accounting software you’ll fail to unlock your full business potential.

If you haven’t invested in online accounting software yet, Xero and QuickBooks are our top recommendations. Both are fully MTD compliant so you can ensure you won’t face any fines for non-compliance. From April 2019, if you are VAT registered with £85k of vatable sales you must be MTD compliant. If you aren’t sure if the UK government initiative, Making Tax Digital, applies to you, speak with your accountant ASAP.

 

Understand what your numbers mean

finance and tax documents

Powerful cloud software will present you with real-time information but it is still essential that you understand what the numbers actually mean for full financial clarity. It is not enough to simply look at your numbers; you should adjust your business strategy accordingly when required.

Your numbers will tell the story of your past, present, and potential future. Cash flow forecasting is vitally important. You should have cash flow forecasts for best and worst case scenarios so you can plan accordingly. Many UK businesses that have failed looked great at first glance because their revenue and profits looked positive but the reality was that they didn’t hold enough cash reserves and they ultimately failed when they ran out of cash.

Do you have a negative profit margin? Your numbers will show you how you got this result. IS your cost of goods too high? Has there been a dip in revenue? Did you incur unexpected expenses? Once you know the answer(s) you can put an action plan in place to improve.

If you don’t understand your numbers you’ll fail to hit your growth targets.

 

Invest in an expert

expert using tablet

Many business owners avoid their finances because they don’t understand what the numbers mean. Avoiding your finances will only result in business failure. If you can’t achieve financial clarity through your own knowledge then the best business investment you can make is to get a CFO.

Typically, businesses have hired a Chief Financial Officer as an employee internally within their organisation to be responsible for managing the company’s finances and providing financial clarity to the board of directors. Having weekly touchpoints to discuss your most important KPIs with an experienced finance director would give you a massive competitive advantage.

However, hiring a CFO internally will cost your business £120,000 plus. What many bigger businesses don’t realise is that hiring a CFO internally is unnecessary. Outsourcing your finance department ensures you benefit from the experienced insight of a finance director without the associated costs. At GrowFactor, we provide a fully outsourced finance department for a fraction of the cost, the only difference is we don’t share a desk in your office!

If you are just starting out or are currently scaling your business you may not need a CFO yet. Instead, ensure you have a great accountant that is providing you with the support you need as your business grows. Modern accounting is about so much more than simple compliance. Your accountant should be ensuring you have a fully comprehensive understanding of your business finances.

Overall, achieving financial clarity is essential if you want your business to beat the 96% UK business failure rate. Regardless of the size of your business, focus on understanding your numbers in real-time and always ensure you have a finance expert that is actively supporting your growth vision.

 

Do you need better financial clarity?

Book a free strategy session with a senior GrowFactor Chartered Accountant. No strings attached.

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