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And this is where we get to the root of the issue…

There are big differences between the ways that large companies run their finances compared to small companies. And these differences are the main reason why so few small companies are successful.

In my experience, most small business owners don’t know what great financial management looks like – unless they’ve worked in a corporate environment and are used to having excellent financial information at their fingertips to help them make key decisions.

I did my professional training in a Corporate world, so I know what fantastic financial management looks like, and the impact it has on the bottom line.

When you get the financial control and reporting right, along with a clear plan of where you want to go, the bottom line results can be startling.

So, what are the issues in getting the same information for a smaller organisation?

Finance is a language barrier

I’m sure you’ve noticed that there’s a whole different language in finance, and it can be really hard to decipher sometimes.

People talking about accruals, prepayments, depreciation and amortisation policies, deferred tax provisions, accrued and deferred income, debits and credits…blah blah blah. And you’re thinking…

‘why can’t you just tell me in plain English what’s going on?’.

As accountants, it’s easy for us to forget sometimes just how long it took us to learn that language. In my case, I studied for six years and have 35 years’ total finance experience under my belt.

The measure of a great bookkeeper or accountant is that they make things really easy for you to understand and they don’t hide behind the jargon.

Because no matter how much you entrust your financial future to someone else, the buck for everything stops with you.

Abdicating financial control and understanding

For all the reasons I talk about, finance can be a challenging subject to get to grips within a small business, and I too often see business owners who just don’t have anything to do with the finance.

They’ve chosen to ‘delegate’ it to someone else, but in reality, they’ve abdicated responsibility for all things financial.

No-one is suggesting you do the accounts yourself; by all means get someone else to do that for you.

But please, please, please make sure you understand enough that you can challenge when things don’t look right, and don’t get fobbed off with technical jargon or vague unconvincing explanations.

I’ve seen people lose their businesses because they didn’t know what their accountant or bookkeeper was doing. Don’t let that be you.

Too low a level of financial skill

Small companies rarely employ finance people with accounting qualifications or strong experience.

There’s an obvious reason for this – the ‘good people’ tend to work for the larger companies who offer study support, a solid career path and better packages.

So, this leaves us with a weaker pool of people to employ from, and it can definitely be a lottery finding someone you can trust with your money.

Bookkeeping is seen as low-level admin

It’s really important to understand that bookkeeping is a highly skilled job and is most certainly not an admin job to be given to the office junior or PA without proper training (unless you want to end up in a real pickle).

Finance staff out of their depth

Because they don’t have the training and skills needed to do the job properly, many finance staff in small companies are way out of their depth.

And without anyone senior they can go to for help, they make up their own way of doing things.

There’s a lot to get wrong in finance that can have serious consequences for you as the owner.

‘But this is the way we’ve always done it…’

Some businesses have a long-standing bookkeeper, usually old school and used to how it’s ‘always been done’.

While some may well be open to embrace change and adapt to working with new technology, many will prefer the old, manual ways of doing things which could cut you off from new ideas.

Authorisations, controls and processes

Any size business needs strong processes and controls – including authorisation and sign off levels for making purchases, paying suppliers and staff, processes for approving purchase invoices and expenses and having policies on controlling payroll and credit control procedures.

We typically find that these controls are weak in business that don’t have a strong experienced finance person.

Lacking management information

Large companies have buckets of information on every aspect of their business, but in small companies, due to the lack of skilled qualified finance staff, management information is usually lacking or minimal. Not useful for making decisions or even basic visibility.

Plus, the business owner often doesn’t know what to ask for, so the blind leading the blind results in you staying in the dark!

Backward-looking year end accountants

This has the potential to be controversial but based on many years’ experience I know this is a massive problem for small businesses.

It’s really important to be clear on what you’re getting from year end accountant – what you’re paying for and what their skill set is. Not all accountants are the same.

I want to caveat this by saying there ARE some great accountants out there who are proactive and understand forward-looking finances, but they’re few and far between in my experience.

Our mission is to get great financial management and skills into small businesses, so that more owners create the financial future they want and deserve.

We offer a structured step-by step approach to take any business to where it wants to be financially. Tell us your dreams, we’re ready to help you achieve them.

Book a free 30-minute call with me

If you’re ready to take action and would like to find out more, you can book a free, 30minute call with me. I promise there won’t be any ‘sell’; that’s just not how we operate – just an informal chat to see if I’m the right person to help you.

To book your call, please email Martin at martin@fwordfinance.co.uk and I’ll get back to you within 24 hours.