By Simon Peskett, Associate Director Of Assurance And Business Services At Smith & Williamson

With continuing volatility and an uncertain economic future, the management of your financial performance is more critical than ever. More and more owner managers are looking at their finance functions and asking whether they are delivering what’s required.

Here we look at ten key questions that owners should be asking of their finance function to assess whether the financial performance of their businesses is being maximised.

1. Does my finance function understand my business and the aspirations of its key stakeholders?

This is key. With the future still uncertain it is important that the focus on long term strategies is not lost and that the key drivers for success, together with the associated risks, are understood and monitored.

2. Is my finance function helping to drive the business forward?

Many finance functions report on a compliance basis providing regular historical information to the stakeholders. However, the real value of a finance function is to be forward looking and identify the opportunities for increasing financial performance, whilst minimising risk.

3. Am I being provided with information that enables considered business decisions?

In the current environment many businesses have undertaken scenario planning. More than ever, management accounts with relevant key performance indicators (KPIs) and comparisons to key milestones are needed on a timely basis along with forward looking projections. These can be flexed to recognise current trading and potential future scenarios.

4. Are the income streams sufficiently well understood to maximise pricing strategies?

For the vast majority of businesses, pricing is fundamental. The finance function should be at the heart of understanding customers’ needs and the competitive landscape so that pricing is set at levels which attract sales and provide a sufficient return for the business.

5. Are business risks being minimised?

A strong finance function will assist and direct the business in identifying, documenting and developing plans to control and mitigate the key risks that the business faces.

6. Is my working capital requirement being managed?

With order books fluctuating violently in many sectors, the need to turn orders into cash as quickly as possible, and to manage the associated funding gap, is critical. Previous recessions have demonstrated that businesses face greater funding risks in an upturn than when the economy contracts in recession. Finance functions should, therefore, treat working capital requirements and day-to-day cash management as priorities.

7. Are relationships with funders strong?

With on-going uncertainty and risk, it’s important that businesses maintain strong relationships with their funders, be they banks or equity providers, and ensure they are kept abreast of current and future developments in the company’s activities.

8. Is the funding of my business appropriate and are the related risks being monitored?

Many businesses need flexibility in their borrowing needs, but at the moment banks are under pressure to reduce their exposure in certain sectors or types of funding.

Understanding the risks associated with the different types of borrowing is crucial. Invoice discounting may have been appropriate in a buoyant market for a growing business, but how will the available facility be affected if turnover is reduced or if customers extend their payment terms? Leave no stone unturned and don’t forget to consider alternative forms of finance. Take a look at the Next Generation Finance Consortium for ideas.

9. Are the overheads of my business appropriate?

Regular value for money audits and cost benefit analysis of overheads by the finance team will allow a business to negotiate terms with suppliers from a position of knowledge and strength.

10. Are you using your professional advisers?

Is advice being sought to ensure that full advantage is being taken of tax breaks that are available to the business and are the full implications of investment strategies understood before decisions are made? Similarly, is the business aware of potential changes in financial reporting that may affect the way investors and lenders will look at the business in the future?

For help in reviewing your finance function, or to talk about potential tax breaks, contact Simon Peskett on 020 7131 8449 or email simon.peskett@smith.williamson.co.uk

By necessity this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Article correct at time of writing.

Smith & Williamson LLP
Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International

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