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Financial & Strategic Consulting

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The Value of Management Information

Why Does My Business Need a Non-Exec Finance Director?

What is the best way to get an overview of how my business is performing?

I would recommend a three stage process for ensuring you have an overview of your business performance without having to troll through numerous reports or contact various managers within the business:

1. Identify your top Key Performance Indicators (KPIs) for your specific business. These should ensure you can measure success against your Strategic Plan. The KPIs can be financial and non-financial.

2. Make sure these KPIs are being accurately measured for the business; decide how frequently they need to be measuring and delegate the responsibility for measuring each KPI to specific individuals.

3. Capture these KPIs in a Business Dashboard, which is a single frame summary of the KPIs, both historic and forecast.

Don't be afraid to change these KPIs as your business evolves and your Strategic Plan changes.

My business is growing well and making good profits, but this never seems to materialise as an increase in bank balances. Why is this?

As a business grows, it tends to absorb working capital. Essentially, the cash generated from your profits is helping to expand this working capital in line with the growth of your business. The working capital requirement of the business tends to increase as your business grows because, for example, you usually have to pay your suppliers / contractors and / or your employees before the client pays you.

In some cases, the cash generated by profits is not sufficient to fund the increase required in working capital as the business expands. In this case, either the business will run out of cash, or the growth curve of the business has to be reduced, or external funding options need to be considered.

There are a variety of potential external funding options available depending on the specific circumstances of your business, but a common one for certain businesses is Invoice Discounting. This is where the business can borrow money, up to a percentage of certain sales invoices it has issued, for a fee. The benefit of invoice discounting is that the amount a business can borrow usually increases the more a business grows – although, there are certain downsides, so you would need to go into this with your 'eyes open'.