Business owners are always ready to tell you how much of their day is consumed by dealing with problems in their companies. I am never surprised to hear people tell me that business problems occur with immaculately bad timing. You cannot solve a problem if you don’t know about it in the first place. All business owners have to be good problem solvers and be able to respond to them quickly.
Every business leader, executive and manager should make developing a complete set of financial controls their first priority. Financial controls are the guardians that detect and bring problems to the manager’s attention. Best practise is to design financial controls into the reports derived from small business accounting software. For example good small business accounting software should report actual sales revenue versus budgeted sales revenue for a specified timescale or period. I believe the best approach is “get a rope across the river” by starting out with a handful of key numbers and relationships, designing the reports to highlight these, refining the out put and then building out from here.
You must closely monitor the margins on what you sell and any deviation from what you set out to achieve regardless how minor should be immediately investigated and understood. If you sell products in volume any sudden change in margins can multiply into losses very quickly and therefore it follows that any decreases in volumes should be immediate cause for concern and therefore having up to date information available is critical. Monitor your fixed costs like a hawk and make particularly sure they follow your plan or budget especially in the early months of the financial year. Scrutinise the debtors reports found in most small business accounting software specifically for the average number of days it takes for you to get your invoices paid, this is a really essential operating ratio that every business should have in place.
Experience is the way to learn and over time you will learn which financial controls should be highlighted in your accounting reports, just make sure you have the right small business accounting software that can generate these.
