It is true to say that often business owners can be heard saying that spending time doing their accounts is a waste or that it amounts to ‘red tape’ but the fact is that having a good grip on the numbers is vital in today’s business environment and can even have real benefits for a well run business. In this article we present a few of the ways that getting your finance function right can help give you peace of mind.

Raising money – most companies need to raise money from time to time. Whether it be in the form of a short term overdraft, a longer term loan, invoice factoring or even just leasing a photocopier then you can expect to be asked for your statutory accounts and a set of your latest management accounts. For larger facilities you can expect to have to answer questions about the money side of things and the better grip you have on this the more impressive you’ll be. Make no mistake that loans (and the rate that they are offered at) are often still decided on the grounds of how good the management of the company are.

Getting investment – Regular viewers of the BBC programme ‘Dragons Den’ won’t be surprised at how often those looking for investment fall down on even the simplest finance question. The reason the dragons ask finance related questions is that they want to know not only the finance data but also how well you understand the money side of the business. This isn’t just for TV as less publicity hungry investors will do exactly the same thing because they know that great executives know the numbers.

Renting space – landlords want to know that the people they are going to allow into their property are likely to be able to pay the rent. You will get asked for a set of accounts during the process and can also expect to be required to produce some management accounts. It is also not uncommon for landlords to make it a requirement that you provide them with management accounts on a quarterly or annual basis.

Avoiding fines and penalties – there’s no getting away from the fact that HMRC and Companies House use fines and penalties to keep us in check and if you don’t provide the required information in the right format at the right time then you can expect to receive fines, penalties and to have to pay interest on any tax due. This is totally avoidable cost and making sure you have all the information at the right time and getting in submitted correctly is the best way to keep cash in your pocket.

Avoiding director disqualification – under UK law it is the responsibility of every director, even if they don’t have specific finance training to make themselves aware of the situation with the business. Not being an accountant is no longer a defence and directors that wilfully ignore the requirement to understand their business can find themselves investigated and disqualified in extreme cases.

Hiring staff – higher level staff will often check out the business during the interview process. In fact, if they are any good then you’d expect them too. You can expect high level accountancy staff to want to see management accounts and to ask you questions about them. Being able to give good quality answers gives the candidate confidence that they are joining a business that is serious about its future and that of its staff.

Selling the business – It’s pretty obvious that any potential buyer is going to want to know what is going on and the more you are selling for then the more questions you are going to get. For medium and large business it is important to remember that buyers will be buying the management and not the business. They will want to see a highly competent and engaged executive team and not a bunch of people who bumble every time money is mentioned. Ingraining a clear understanding of finance in your execs will mean that when they are asked questions during due diligence they can give confident and coherent answers. A top quality finance function will also give the buyers confidence and gives them less reason to reduce the sale price.

Buying a business – when selling a business, particularly one that has been built up from scratch or is a family firm, the vendor will often do ‘reverse due diligence’. When it’s not all about the money they will want to know that their legacy is going to a business that is going to run it in a sensible way. being able to show that you understand the numbers and what contribution their company will make to the group is a way to prove that you are serious about the acquisition.

Competitive Advantage – imagine two companies, both of whom are bidding on the same contract. One knows roughly how much they can charge and bids accordingly, the other understands exactly the costs of servicing the contract and the acquisition costs. Which is firm is more likely to end up with a contract that is profitable? Although the first business might bid less it is often the one that can back up their pricing model that gets the work and not one that puts in a low price worked out on the back of an envelope.

Tender bids – during tender bidding the suitors will always be asked for management accounts information but on larger bids they will often be asked to go for a meeting to discuss their offer. In the same way as the Dragons Den example it is highly impressive if the executive answering the questions knows all of the finance information by heart. By the same token a manager that presents a as disorganised and unprepared is likely to get short shrift. A clear knowledge of finance is likely to put your business among the frontrunners for any bid.

Sleeping well – If you are a business owner then there are a multitude of things that can keep you up at night, why let finance be one of them? Understanding exactly where you are in terms of finance is a great place to be and reduces the amount of stress considerably. Even if the numbers are bad then knowing how bad is a good starting point for working on a plan to make things better.

Gaining a clear understanding of the finances of your firm can help you in many ways and is a very important aspect of every modern executive’s job. Taking time to invest in a top quality finance team and immerse yourself in the numbers pays dividends for the best companies.

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