The majority of aspiring business owners and entrepreneurs do not set out to become the next Branson or Zuckerberg. Indeed, many self-starters do so to be self-sufficient and don’t harbour big dreams at the beginning, meaning having a good finance team is often not high on their agenda.

Yet setting a good financial precedent from the start can mark the difference between your fledgling business – be it an online store or a mobile hairdresser – flourishing or falling at the first growth hurdle.

Ultimately a growing business can’t manage without solid financial foundations.  Financial capability shouldn’t be an afterthought – regardless of how entrepreneurial or creative the business is. Without a strong balance sheet and a beady eye on cash flow, success is only going to be limited or short lived.

Shoebox to show stopper

How can small businesses ensure in-house financial capabilities grow with them? Does this mean taking money out of the business that could be better used to drive and support growth? Or is it in itself one of the best investments they can make?

Fortunately, in these circumstances, vision and sound business planning are far more important than money or personal expertise.

Most SMEs will have marketing plans in place and understand the fundamentals of profit and loss, but setting up a few key performance indicators and a robust finance function from the word go will help business owners keep track of the company’s health.

As long as they are clearly derived from a company’s actual business plan, these KPIs will arm you with the information you need to control the broad direction of the business, and facilitate strategies that help you with inevitable obstacles – from falling demand or rising costs to late payers.

Whatever you do must suit your ambitions realistically. Look at strategic capability of people in the business and allocate functions – HR, marketing and sales, admin support and finance.

Think big thoughts

It is said that half of all marketing is wasted, but which half? The same could be said for business support software and intelligence systems. Think tactically from the start as you want the flexibility and freedom to choose a solution that not only supports your specific needs from the outset, but that evolves with the business.

Our business partner, K3, champions taking a big business approach. Think like a bank and adopt some big world thinking by asking ‘what if?’ and stress testing your business plan. Within corporates, finance teams are incremental in these tests.

John Chinery at K3 recommends, ‘Growth is uneven, so knowing and testing every stage of your business is vital as there will be a transition point when the organisation recognises that “off the shelf” processes and systems no longer support the complexities of the operation. The instant and real benefit is that the business has a highly functional, scalable yet flexible suite of business tools allowing you to prepare and take remedial action when issues arise, whilst driving efficiency across the enterprise.’

Plan for the unexpected

When it comes to business expansion, your finance team can – and indeed must – help you assess the business case for new products, services or customers.

Lack of funding was recently cited in an ACCA product innovation insight survey as a main reason for service failings, while companies with well-resourced finance functions employing highly scalable cost effective business intelligence were most successful.

Many SMEs think like a person: they make X, sell Y and charge for each widget. Typically they don’t look at building business capabilities until they have £1 million turnover or more. However, analysing business activity as early as possible can reveal significant benefits when making one-off capital investments. Employing business software with integrated CRM, business intelligence and financials, gives you a great tool for analysing transaction information and assessing the true drivers behind customer purchases. This in turn gives SMEs a greater understanding of customer loyalty and triggers, helping them invest to support those customer trends which can drive growth.

Credit guardians

Cash flow is one of the most commonly cited headaches plaguing small and growing business owners. Treating credit as a product that should be sold as such, properly costing credit can be key to a business’ success.

After all, credit costs, so John Chinery at K3 advises that you know your customer inside out, ‘Weighing up risk factors and customer relationships can be helped with a little information from project accounting tools – it’s important to know what it costs to manage a customer. As a result, you may find that it is more cost effective to rely on few major clients, or move to multiple small customers.

‘It can be puzzling to decide how much credit you should be offering your customers, so it’s important to trust your finance function to help communicate a clear credit policy and hold on to valuable customers. Your finance software can act as an early warning system long before a credit situation becomes a risk – so be aware of it.

‘The mantra for credit is “forecasting, forecasting, forecasting” as your cash flow is the first thing any bank or business angel will look at. Know when money comes and goes as you won’t convince anyone that you have control of the business if you don’t.’

Health check

Work with product lifecycle analysis to help inform decisions around your Customer Relationship Management (CRM) needs. Traditionally a space owned by sales departments, it is now acknowledged that finance needs to get involved. I would advise being realistic when it comes to cash flow – assume that not everyone will pay on time and work on a 20 per cent loss with the business when it comes to payment. Adopt key performance indicators and project accounting forecasts that convert overheads to direct costs or project costs and employee time.

Whilst a helicopter view of the business won’t tell you everything, it will facilitate business growth through tying back/cascading performance to objectives. Think of your KPIs as the dashboard of a car – fuel, miles to go, miles per gallon – that maximise your journey. Use real-time data to your advantage.

Each of these areas is key to any new – and importantly, any growing – business. If implemented, they can deliver or drive business development that will help them connect with customers at every touch point and turn passion to planned future business success.