An Article From “Helping You Build A Better Business” Series
Article #4
Step 3: Install Financial Systems & Control!
With today’s pressure to do more with less, how can you get it all done! Where do you start? -Technology, computers, website, training, getting paid, dealing with customers, getting proposals out, government regulations, cash flow, payroll, ordering from suppliers, meeting with subcontractors, negotiating contracts, keeping jobs on schedule, and trying to manage staff? How do you do it all?
Systems
As discussed in a previous article “Quick Guide to Simple System installation”, where we detailed why having systems will save you and your team both time and money.
A quick summary, before we delve deeper into Financial systems in this article.
The basic rule for systemising is - ‘Systemise the routine, humanise the exception’. Anything that can’t be automated needs to be run by people – but the way they operate, needs to be documented in a system.
Always look at putting a system in place rather than employing more people. A system means that things are done consistently, regardless of the team member – and is the only way to guaranteeing quality and customer satisfaction. Make your systems simple, practical and easy to follow.
Systems allow you to produce the same results on every job every time. Systems will get everyone doing business the same way. Systems will insure little things are taken care of without you reminding people to do them the way you want them done. Systems will allow you to focus on the important tasks that will make you the most money. Systems allow you to deliver consistent results to your bottom-line and your customer’s requirements every time without you being there and making every decision for your people.
Remember…
- Systems run your business…
- People run your systems…
- You lead your people…
Systems are the key to a successful business!
Financial Systems
As your business grows, you get to the point you can’t do it all yourself. You really don’t like paperwork or bookkeeping. But you have to pay your bills, balance your cheque book and collect your receivables to keep your doors open.
You decide to take someone on part-time to help out – it’s a friend or relative who had a junior accounts position for 2 months, 15 years ago.
And then you realise this isn’t working…you aren’t getting the management accounts in time or of the standard you require ….or you don’t have accurate forecasts or budgets to work from to make management decisions.
You are at a crossroads that most company owners get to at some stage. Should you hire a professional to be your accountant? Or, do you continue to limp along with an untrained, behind the times, and part time accounts payable clerk managing your money?
Hire a pro now!
As your business grows, one of your most important hires must be an experienced accountant. This is a necessary investment in your future and required to build an excellent company. Without a `pro’ managing your finances, you business can’t reach its’ full potential or grow profitably.
Responsibilities of an experienced accountant include: how to manage and control your accounts payables, accounts receivables, monthly management accounts (financial reports, balance sheets, income statements), payroll, job costing, retention, collections, bonding, banking, month-end close-out, bank reconciliations, budgets, capital expenditure and cash-flow projections. An experienced accountant will know what software your company needs, can supervise its’ installation and fully maximize your return on investment. An experienced accountant stays abreast of the latest tax laws, accounting methodology and industry financial trends. They will become a trusted partner in your business growth.
Install financial systems now!
You must also make it a priority to install the best possible systems, technology, reporting methods and tracking systems. This will allow you to
- make good decisions,
- make people accountable,
- keep your eyes on the bottom-line
- and give you time to focus on what makes the most money for your operation.
Financial systems and controls are required to build an excellent business and hit your goals.
*Let’s start with the basics. *
In order to run a successful and profitable company you must know where you stand at all times on:
- Sales (£ and volume)
- Direct Costs
- Overhead & fixed costs
- Gross Profit (In total & per income stream)
- Net Profit
- Labour & equipment costs
- Accounts receivable
- Accounts payable
- Equity & working capital
- Cash & cash-flow
Financial targets
Sound financial management includes tracking your targets and staying abreast of your progress. Use KPI’s (Key Performance Indicators) to do this.
KPI’s will vary depending on the type of business. Below are a few standard ones. To build an excellent business, make it a priority to set annual & monthly financial goals in the following areas and then keep track of your progress on a monthly basis.
- Sales
- Direct Costs
- Overheads
- Net Profit
- Average Markup %
- Average Gross Profit % (In total and by income stream)
- Break-even
- Sales to break-even
- Sales to hit gross profit goal
- Volume & profit per key employee
It’s hard to go broke with good financial systems!
Financial Management
Sound financial management includes keeping track of several key success factors. Get your reports on-time to stay on top of your company. Company owners without good accounting records and reports never know how they’re doing, bid too cheap, can’t retire and don’t have any investments.
*Monthly financial reports required: *
- Income statement (profit & loss)
- Balance sheet (financial statement)
- Direct cost report for current projects
- Cash-flow projections
- Accounts receivable aging
- Accounts payables aging
- Cash balances - all bank accounts
Weekly reports required:
- Accounts receivable aging
- Accounts payables aging
- Cash balances - all bank accounts
- Line of credit status
- Deposit log of weekly amounts received
- Cash outflow log over the next week
- Current payroll report
How to install a financial system
There are four basic steps to systemisation…
- Flowchart each process in the accounts area. This will show you how it all fits together. Below is a basic systemised list for accounts payable and receivable as an example.
- Document how it gets done. Get the team member who is currently doing the job to write down every step in performing a task. This person should then get a new person to do the task with the written down steps. If the person currently doing the task has to step in and explain anything to the new person then add or clarify the step etc. Once completed start again with another person until any person can do the task without intervention. It may seem laborious, but it will save time and money in the long run.
- Measure using financial key performance indicators. Typically, these will be the top five measures to show system performance. Get these from the person doing the job.
- Allow the system to change/grow. Ensure the system is self-correcting and can evolve – this does not mean loss of control, but strengthening and maturity.
2 Examples of a Business Systemisation list
Accounts Payable Systems (Purchase Ledger)
• Purchasing procedures and approvals required
• Payment process for supplies and inventory
• Petty cash
Invoicing and Accounts Receivable Systems (Sales Ledger)
• Invoicing customers for the orders
• Receiving payments for the orders and crediting customers for payment (whether cash, cheque or credit card)
• Monitoring credit control and age of accounts
• Starting the collection process for outstanding receivables
Note – All the steps for the weekly and monthly reporting can also be systemised
Let go - but keep financial controls!
The term `stick your hand in the cookie jar’ is not as uncommon as you think. Financial controls help you to ensure the probability of this happening to your business are reduced.
Some financial problem areas to watch out for include poor personnel or vacation records, credit card or reimbursable expenses not being reviewed, automatic payroll deposits, company accounts or shipping charges or excess materials being ordered for jobs. Also ensure, if possible, the owner or two management signatures & approvals on all contracts, cheques and automatic payroll deposits. Review your bank reconciliation every month too.
A few simple checks and balances eliminate future problems, disappointment, stress and potential financial loss for your company. Don’t wait until it’s too late to implement financial safeguards and controls.
*The more you know, the more you can grow *
To maximize your return, follow the steps outlined above plus get some outside professional help. You can’t do it all yourself. You need a team of financial pros who can give you advice as your business grows. Your financial team should include a banker, insurance agent, attorney, business coach / growth consultant, technology consultant …to name a few.
Get some professional advice and make installing financial systems and controls a top priority and part of building an excellent business. You can’t run your company in the dark. Remember the more you know, the more you can grow.
Track Time & Productivity
Employ methods to track time usage – stop being busy and start becoming productive by using time more effectively. Become aware of what your Return on Investment is for your and your team’s time.
But for now, take the first step and start working differently – hire a pro, start installing financial systems and set & manage your financial targets.
