By Simon Peskett, Associate Director of Assurance and Business Services at Smith & Williamson

With the future for the global economy still uncertain, the management of financial performance is more critical than ever. More and more owner/managers are looking at their finance function and asking whether it is delivering what is required.

Here we look at ten questions that owners should be asking of their finance function to assess whether the financial performance of the business is being maximised. They are not exhaustive and different businesses will have different requirements of their finance team, but all businesses will benefit from answering the questions below.

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

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

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 the financial performance of a business, while minimising risk.

3. Am I being provided with relevant management information that helps make 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 must be produced on a timely basis along with forward looking projections. These can be flexed to recognise current trading and various future scenarios.

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

For the vast majority of businesses, pricing is fundamental and the finance function should be at the heart of understanding customers’ needs, the approach of competitors and the nature of the underlying market so that pricing can be set appropriately to attract sales but 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 an order into cash as quickly as possible, and to manage the associated funding gap, is critical. Previous recessions have taught us that businesses face greater funding risks in the upturn than when the economy contracts in recession. Finance functions should therefore, as always, treat working capital and cash management as priorities.

7. Are the relationships with funders strong?

With the current level of uncertainty in the market it is important that businesses maintain a strong relationship 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. Businesses need to understand the risks associated with the different types of borrowing being offered. 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 customers extend their payment terms? Different banks have different risk profiles and so it is important that the finance team finds a lender who will provide the appropriate funding at the right price.

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 strength.

10. Are the relationships with professional advisers strong?

Is advice being sought to ensure that full advantage is being taken of tax breaks that are available for 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?

If you would like help in reviewing your finance function, speak to Simon Peskett on 020 7131 8449 or email simon.peskett@smith.williamson.co.uk

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