Three Ways You Can Strengthen The Financial Backbone Of Your Business

When you think about what constitutes the financial backbone of your business, what comes to mind? Is it the team? The financial statements? In truth, it’s both of these combined, and more. As a primary driver of performance success, the financial core of a business runs with all the cogs working together in sync. How might you go about improving your financial backbone? Here are three ways you can nail down a strong foundation.

Establish The Right Team

Brigham Young University Rugby head coach David Smyth said concerning his team during the 2014 season, 

“We knew we were going to have a solid team collectively this year… but we also knew we were going to lack in some areas up front, so it took a while to figure out the exact combinations and personnel that we were going to have to lean on when the postseason began. But I think once we sorted that out and the players were able to get to know their roles, then we started building and playing some good rugby.”

That year, BYU won the title of Varsity Cup National Champions. Like Coach Smyth, you have the chance to evaluate your team, play to your strengths, and mitigate your weaknesses. Each role in a financial team has a responsibility to cover what the other roles cannot complete as efficiently. 

Sometimes, business owners glue themselves to the idea of doing the most without having to build onto their current team, which may likely do more harm than good in the long run. Matching your financial lineup with your growth goals is critical in operating at an efficient level. Where one eCommerce business might be starting out with basic inventory bookkeeping, another business in the same industry might be exploding, and having a small team of accountants won’t cut it for scaling. The second business might be ready for a controller or CFO. Actively assessing your performance levels and goals will help you recognize your needs and evaluate the type of finance professionals you need. 

What’s the difference between the levels of financial professionals? While a CFO and controller work together to uphold high standards for financial data and accurate financials, the CFO works closely with you to execute the vision and goals of the company. The controller is just as important for understanding and reporting on the GAAP, accounting, and operational end. Read here for more information on the difference between a CFO and a controller.

Maintain a solid financial reporting structure

This cannot be stressed enough. Maintaining an accurate and timely reporting structure includes ensuring the accuracy of the balance sheet (accounting for assets, liabilities, and equity) and income statement. Having unstructured and cluttered financials bleeds over into the income statement and forecasting levels.

 If you feel overwhelmed at the thought of grappling with messy financials, consider taking on outside financial help from an expert. Outsourcing someone who will set up processes in place will significantly cut back on effort on your end and simultaneously improve your financial data. 

Keep in mind that having the right KPIs in place for your business model can make all the difference. What might be great metrics for eCommerce may not be as relevant to businesses in the food services industry. Many owners also tend not to see the importance of having the right technology in place for financial operations. Especially without a CFO or controller on board, owners might miss out on certain tools that can automate many financial tasks, such as Quickbooks or NetSuite. Keep an open mind to what might be a good investment in terms of tools and technology to support your finance team.

Long-term and short-term planning

Hopefully at the end of 2020, you sufficiently prepared and planned for a solid Q1 in 2021. Successful entrepreneur Jim Rohn said, “We all need lots of powerful long-range goals to help us past the short-term obstacles.” Long-term and short-term planning work in tandem to help us achieve our overall business goals. The essence of long-and-short-term planning is leveraging your business advantages and KPIs as you align yourself to your overall strategic plan.

Long-term planning may have different meanings for businesses at different growth stages (up to 6 months for startups and 2—3 years for larger businesses). Look to your yearly business strategy as you make plans. How would employee contributions and sales resources add to your growth? What internal or external factors might impact your plans? How will you go about acquiring funding? These questions will be helpful in determining your long-term plans in accordance with your strategy. 

Short-term planning primarily addresses potential damaging events and circumstances to the business (think economic strife, cash shortages, or other unforeseen events and expenses). As always, your planning and strategy should be apparent in your financial data. It’s impossible for you to fully predict the waves of economic change on a yearly or quarterly basis, but having a contingency plan for events such as further economic distress and capital raise will serve as an anchor in the survival of your business.

Not to be overlooked in short-and-long term planning is financial modeling. Crucial in understanding timelines and financial performance at any future time period, financial modeling sets the stage and acts as a sandbox for you to identify different results and make adjustments to current operations. It produces insights for current financial planning and helps you identify what obstacles might arise based on current performance. Read here for more information on financial modeling.

These three steps are basic, but they serve as instrumental parts of keeping a well-oiled finance machine. Don’t feel like you have to do it all on your own, however. Getting professional help from an accredited finance expert can shift the weight from you. Improving your team, planning effectively, and reporting accurately will enable you to answer with more confidence when hard times come knocking.