11/02/2011

By Mike Southon, FT columnist

The key factor in delivering good mentoring is to understand your own strengths and weaknesses. In my case, after ten years’ in-depth study of the challenges of starting and growing small businesses, my own particular blind spot is finance.

It is not that I do not understand the essentials of double-entry bookkeeping, taxation or cost analysis. It is more the case that when talk moves to these subjects, my eyes glaze over and my mind wanders off to topics of more personal interest, such as sales and team building. If people have challenges in the finance area, I always refer them to someone else, a genuine subject matter expert.

The only finance advice I do provide is to avoid debt wherever possible. While there are many people who are expert at taking on debt and leveraging their businesses, this is a dangerous game for the unwary or over-confident, who can over-extend themselves with disastrous effect.

This might not even be their fault, but a by-product of the recession, an external event caused by some very unpleasant people, many of whom seem to have exited with large personal fortunes.

The best financial advice I give would-be entrepreneurs is to start by running a cash-positive, service business. Even someone with negligible financial skills can determine that the business has had a good week if there is more money in their bank account at the end of it than at the beginning.

So long as you continue this for fifty-two weeks in a year, you have mastered the first of the seven stages of finance. You may never progress past this stage, but remain a successful, self-employed sole trader with a good quality of life.

There will be long hours and occasional crises to knock your confidence, but if you are passionate about customer satisfaction and able to build a small team, you will be able to weather the storms. You might even learn how to use a spreadsheet, which is the simple, second stage of finance.

The third stage is to realise that rather than spending your valuable time collating receipts and issuing invoices, it is more cost-effective to hire a bookkeeper. This almost inevitably leads to stage four, which is to hire an accountant to file the paperwork that the government requires.

Both bookkeepers and accountants are by necessity reactive, dealing with history. As the company grows, it will be necessary to do forward planning, a role typically undertaken by a finance director. Many companies become stuck at this point, as they want to grow but cannot afford a full-time finance director.

Fortunately there are now companies who provide virtual finance directors, who can undertake this role for a day a month if that is all you require. This is stage five, and the same company can also help you to stage six, which is when you finally hire a full-time finance director.

Stage seven of finance is only necessary if you are planning a public listing, trade sale, management buy-out or other significant transaction. This is probably a task beyond your local accountant, so my advice is engage one of the top accounting firms to negotiate on your behalf.

The best firms will also provide personal tax advice to ensure you do not give a disproportionate amount to the government to help pay off the national debt.

My overall advice is always to get the best financial advice you can afford from increasingly expert people as you grow your business. If you do, then you will be able to concentrate on those parts of the business that really excite you.

If you are looking for help with finance, I am delighted to recommend personally the supporters of the Beermat e-zine, The TFM Centre, fd Unlimited and Smith & Williamson:

The Financial Management Centre are a leading financial management consultancy. Their innovative approach helps organisations of all sizes achieve business performance excellence. And most importantly, they are commited and passionate about helping businesses become more successful.

Today’s environment presents many challenges. By providing sound, financial understanding and detailed analysis of the business, they help companies face these challenges and discover untapped opportunities to exploit.

Whatever financial management support and advice your business requires, they can provide you with a bespoke service. Visit: www.tfmcentre.co.uk

fd unlimited provides high calibre and cost effective part-time, interim and full-time Finance Directors, Controllers, Finance and support services to SME companies with aspirations for growth.

The firm helps companies who need support from a finance professional or have a specific project requiring finance skills. Their network of 3,000 experienced professionals cover companies of all sizes, sectors, situations and locations in the UK. They can match you with the right resource quickly.

They are pleased to offer a free consultation on your requirements and a 10% discount on any subsequent work undertaken. Please email info@fdunlimited.com quoting BEERMAT.

Smith & Williamson is a leading financial services group with a specialist team serving entrepreneurs and growth businesses. The firm provides accountancy, tax, corporate finance and people management services to businesses, as well as personal tax and financial planning services to individuals.

The firm works with entrepreneurs and growth businesses from vision to exit and beyond, offering a full range of financial services and working with selected partners to provide a range of complementary services.

Owners and their businesses can benefit from a range of free reviews, so if you are looking to grow or sell your business, incentivise your staff or consider ways to reduce your tax bills, visit their website at www.ukentrepreneurs.com

Originally published in The Financial Times: http://www.ft.com
Copyright ©Mike Southon 2011. All Rights Reserved. Not to be
reproduced without permission in writing.

Mike Southon - Co-author of The Beermat Entrepreneur & Business Speaker - http://www.mikesouthon.com

Join us on