As a business owner, there are some crucial questions that you should be putting to your finance function to assess whether the financial performance of your business is being maximised. This is not an exhaustive list, and different businesses will have different requirements of their finance people, but all companies can benefit from answering these ten questions.
1. Does our finance function understand the business and the aspirations of key stakeholders?
This is key. With the future so uncertain it's important the focus on long-term strategies isn't lost and the key drivers for success, together with associated risks, are understood and monitored closely.
2. Is our finance function helping to drive the business forward?
Many finance functions report on a compliance basis, providing regular historical information to stakeholders. However, the real value of a finance function is to be found looking forward and identifying the opportunities for increasing the financial performance of a business, while minimising risk.
3. Are we getting relevant management information that helps make business decisions?
In the current environment many businesses are using scenario planning to anticipate future needs. More than ever, management accounts with relevant key performance indicators (KPIs) and comparisons to key milestones must be produced on a timely basis with forward looking projections. These need to be flexed according to current trading and various scenarios.
4. Are income streams sufficiently well understood to maximise pricing strategies?
For the vast majority of businesses pricing is fundamental and the finance function should be at the heart of understanding customers' needs, the approach of competitors and the nature of the underlying market so that pricing can be set appropriately to attract sales and provide a sufficient return for the business.
5. Are business risks being minimised?
A strong finance function should assist and direct the business in identifying, documenting and developing plans to control and mitigate the key risks the business faces.
6. Is our working capital requirement being managed?
With order books fluctuating violently in many sectors, the need to turn an order into cash as quickly as possible, and to manage the associated gap, is crucial. Finance functions should always treat working capital and cash management as priorities.
7. Are our relationships with funders strong?
With the current level of uncertainty in the market it is important businesses maintain a strong relationship with their funders, be they banks or equity providers, and ensure they are kept apprised of current and future developments at the company.
8. Is the funding of our business appropriate, and are the related risks being monitored?
Many businesses need flexibility in their borrowing structure but banks are still under pressure to reduce their exposure. Businesses need to understand the risks associated with the different types of borrowing being offered. Invoice discounting may have been appropriate in a buoyant market for a growing business but how will the facility be affected if turnover is reduced or customers extend their payment terms? Different banks have different risk profiles so it is important your finance team finds a lender who will provide the appropriate funding at the right price.
9. Are our business overheads appropriate?
Regular value for money audits and cost benefit analysis of overheads by the finance team will allow a business to negotiate terms with suppliers from a position of strength.
10. Do we get good advice from our professional advisers?
Are you taking full advantage of tax breaks that are available for the business? Are the full implications of investment strategies understood before decisions are made? Similarly, is the business aware of potential changes in financial reporting that may affect the way investors and lenders will look at the business in the future?
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
