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  • Writer's pictureHale Portfolio

Why you should think of your business finances as a house

A core aim of Hale Portfolio is to simplify finance for business owners and I find one of the best ways to do this is to liken a company’s business finances to a house:

The Foundations

I believe the key to your business finances being under control is through bookkeeping. Weekly bookkeeping provides the solid foundations on which you can build the walls of your business.

It is vital to know what has sold, when that money will come in, what your business has purchased, and when that money will go out.

All invoices must go onto the system to ensure there is only one version of the truth. I have seen it where businesses are inconsistent and rely on a paper-based system, meaning things are overlooked and it is impossible to have an accurate view of the situation.

Using technology such as Xero, processes are streamlined to make things as efficient as possible and ensure you are ahead of things and not playing catch up. With an up-to-date system, you can see who owes what, including what payments you owe and when they are due, which enables you to prioritise payments helping with your cash flow.

There is a cost to outsourcing bookkeeping, however, you are effectively buying time that you can spend on the parts of your business that you enjoy and are good at – worth far more than the bookkeeping outlay.

Ground floor

With bookkeeping processes under control, you can then build your walls – which I see as simple managerial information showing profit and loss month by month. This information enables you to see how you are doing and to make comparisons over time. For example, you may spot seasonality patterns and therefore be better prepared for an influx of orders and likewise, any quieter periods.

These simple comparisons can also show how far you have come or if things are on a downward trajectory allowing you to take the appropriate action.

First floor

This is when we have enough financial information to be able to subdivide the business using technology like Xero’s tracking category which enables you to see how each part of the business is performing. Information can be broken down into product type or location etc. and the information garnered can be analysed so that you can understand what is driving your business.

The roof

The final part of your house is the roof which represents the budget stage. Setting a budget will help you plan and the management information you gather will enable you to see how the business is performing on actual versus tracked information.

Legally speaking the foundations are the only layer of information that you must do so why bother building the entire house? Simply because it makes things easier for you to manage, makes things more efficient, and with the quality information gathered, you can make better decisions to drive your business forward.

If your SME needs help with any section of the ‘house’, then please do not hesitate to contact me and we will be happy to help. We love to deliver financial order, efficiency, and understanding by providing flexible, part-time finance director expertise and bookkeeping services.

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