Five ways to avoid a false sense of security


Business owners have the importance of profit drilled into them from the moment they come up with their idea, but it’s not the be all and end all of entrepreneurial success.

Often, businesses fold simply because they haven’t got their numbers right, and have failed to realise that there are more dimensions to commercial stability than simply generating profit. Here are five of the biggest points to consider when analysing just how ‘in the black’ your company really is:

1. Be sure to account for loans

Since only the interest on loans is counted as part of your operating expenses, you may overlook any large sums you borrowed to get your business off and running. Some find that their month-to-month profit is instantly wiped out by their loan payments, making them decidedly less profitable that they may have appeared to be.

2. Don’t count profit until it’s in your account

Business owners are sometimes guilty of counting their chickens before they hatch. Securing contracts is all well and good, but what if they can’t or don’t pay? Profit can instantly turn to loss if you don’t bear this possibility in mind.

3. Don’t rely too heavily on one contract

Having a major company ploughing money into your products or services is great news, but it can falsely distort your figures. You should look after your regular smaller volume clients and customers just as much, because they will be your bread and butter should the larger ones face financial difficulty or start using another supplier.

Large companies that go bust often take several SMEs with them – make sure yours isn’t one of them.

4. Look after your staff

Although all companies should have procedures and processes in place to allow staff changeovers to be as smooth as possible, losing an excellent employee can hit SMEs hard. Training a new person in their place will inevitably take time and money out of the business.

Value your staff and make sure they feel appreciated. Pension schemes and regular pay reviews can help, but don’t underestimate the importance of a simple ‘well done’ or ‘thank you’ now and again. It costs nothing, but forgetting to do it could leave you counting the costs.

5. Ensure somebody is overseeing your accounts

With accounts teams often being highly focused on recording the day-to-day ins and outs, they can sometimes fail to take a step back and see the bigger picture of where money is being brought in and lost.

Turning to outsourced finance and accounting services can ensure that a qualified team is monitoring your cashflow closely, working with directors to address any possible concerns around the corner.