The life of a business can be turbulent. But all the companies we work with agree on one thing: the need for a well-structured financial system! Here you’ll find the top 20 tips we’ve gathered from our experience as Chief Financial Officers working with our clients. Whether you’re a construction company or a startup, these tips apply to all business models.
1 – It will always be easier to generate revenue than to avoid expenses. Prioritize revenue.
There is a myth that, to increase profitability, you need to successfully control and reduce costs. While this is indeed essential, it will never be the simplest or fastest solution. The time required to audit the various departments of the company, compare them, and identify areas for optimization is time that isn’t spent on increasing revenue. If there’s a sense of urgency, cost optimization isn’t the solution. You’ll need to generate more revenue.
2 – Many accountants are numbers-oriented. Some, however, are more business-oriented: go with those.
VAT, corporate income tax, employer payroll taxes, etc. There are a multitude of taxes that your accountant handles, and he or she strives to be as thorough as possible with them. For some, this comes at the expense of the company’s operations. Some accountants are very knowledgeable about how to make your business profitable. Today, there are firms that specialize in specific industries. Shop around for accountants and see which ones understand your business best.
3 – Always have 6 months' worth of cash set aside—you never know when you might need it.
This applies to many areas, particularly hiring. An employee will never be profitable right away. Setting aside the employee’s salary—including payroll taxes—is a good way to avoid “cash flow problems.” This approach works across the board and helps prevent a lull in cash inflows.
4 – Bankers are salespeople; seek advice from someone else.
Bankers have targets to meet regarding the number of loans granted, the amount raised, the “add-ons” sold, and the type of financing (traditional loan or lease). Not to mention any sales promotions that may be taking place. All these factors mean that what they say is shaped by their sales goals. If you need advice, seek it elsewhere before meeting with your banker. That way, you’ll be able to make a more informed and objective decision.
5 – Sell your story to your banker; he isn't an expert in your line of work.
Bankers see a wide variety of businesses and won’t be familiar with the specifics of your business. Their job is to finance businesses while minimizing risk. To them, the unknown equals risk. Your goal, therefore, is to reassure your banker and convince him or her to believe in your story. Storytelling is always helpful.
6 – Always start the insurance renewal process at least 3 months before the policy expiration date.
Insurance represents a significant portion of your budget and should be reviewed regularly. If your business undergoes various changes (increased revenue, new hires, etc.), you should review your insurance policies annually. And since canceling a policy can take time, it’s recommended that you start the process at least 3 months in advance.
7 – If you don't understand your balance sheet, you'll be at the mercy of your accountant.
A balance sheet is full of numbers, columns, accounting codes, and tax codes. It’s not exactly exciting, and it doesn’t make you want to read it. But it’s your annual checkup. You need to be able to read and understand it. Not all accountants provide a detailed explanation of the balance sheet, and even when they do, they don’t necessarily have an entrepreneurial perspective. Learn how to read it and discuss it!
8 – The more layers of management there are in a company, the longer you'll have to wait for your payment.
The larger the company, the more steps there are in the process. Your invoice is received by Person A, who forwards it to Person B, who needs a signature from Person C, who then sends it to Person D for payment. This is a recurring process, and you need to be prepared for it. You’ll need to set up a follow-up system or finance the amount owed (through a factoring agreement, for example).
9 – Profits won't keep rising forever. But you need to understand why.
Profits are what entrepreneurs love most. But it’s impossible for a growing company to see its profits increase indefinitely. For example, when a company reaches a certain number of employees, it will need to add a management layer. These additional people aren’t “productive” by nature. They represent an immediate cost that comes at the expense of future profitability.
10 – The most important thing: cash flow.
Many entrepreneurs manage their businesses based on revenue, net income, or EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). While these are important, they shouldn’t be the only metrics used. It’s essential to stay on top of cash inflows and outflows at all times so you can anticipate any needs. Be sure to also consider MRR (Monthly Recurring Revenue) and ARR (Annual Recurring Revenue).
11 – The decline in gross margins is THE problem that needs to be addressed immediately.
There can be a multitude of day-to-day problems in a business. Those that affect profit margins take priority because everything else in the company’s operations stems from that. We’re seeing this today with the surge in raw material prices. In the construction industry, some projects have been canceled because the quotes were based on prices that were no longer sustainable. It is not illegal to cancel a signed quote. It is better not to take on a project than to do it at a loss.
12 – Not having an invoice follow-up process is the best way to leave money on the table.
Late payments are very common. More often than not, they result from forgetfulness rather than dishonesty. Most invoicing tools allow you to send automatic reminder emails. Setting up a follow-up process with three reminders covers 95% of late payments. If you haven’t heard back after 15 days, take control by sending an email stating that if payment isn’t received by a certain deadline, legal action will be taken. This final email covers the remaining 4% of late payments.
13 – Check your account once a week. It's the best way to understand your business.
Even if you have a CFO or someone else in charge of your company’s finances, it’s essential that you keep track of all the transactions in your account. Reading your balance sheet will help you better understand the business (see point 7).
14 – Never assume that people understand the numbers. Since they’ll never ask, always explain.
If there’s one thing the brain has trouble processing in a conversation, it’s numbers. They’re too abstract. You’ll always need to explain them for clarity. Especially since it’s often hard to admit that you don’t understand them. By being clear and explicit, you save everyone time and ensure that your message is understood correctly.
15 – Always set deadlines, and stick to them.
Deadlines are very important in businesses. They should not be too short, so as not to cause unnecessary stress, nor too long, to prevent those involved from putting off their work until the last minute. It is imperative that they be met; your company’s credibility depends on it.
16 – ALWAYS ask for and read the contract.
One of the most common mistakes is trusting the person you’re talking to. Some unscrupulous salespeople count on this. Be wary of advertised prices such as “Unbeatable price if you sign up by a certain date.” These offers often hide terms that are significantly less favorable. For example: a communications agency sells a website for less than €1,000, but you end up locked into a 48-month contract at €400 per month.
17 – Keeping your files well-organized takes time. But in the event of an audit, it saves you a lot of time.
Keeping your records well-organized isn't just about the financial side of things. Some companies seek certification to meet certain standards (such as ISO). You'll always save time by staying organized from the start!
18 – Always be on the lookout for financing and borrowing options. By the time you need them, it’s already too late.
For all of our clients, we are constantly seeking to secure financing for various needs. Cash is king. Anticipate your needs and strive to free up cash on an ongoing basis.
19 – Numbers are a sensitive topic, so be clear and tell the truth. Beating around the bush doesn't help anyone.
For your suppliers, your bank, your partners, and other stakeholders, extending your business forecast any further won’t be of much help.
If you’re close to your actual numbers, your forecasts, and what your 6-month projection might look like, that’s already a good start. You’ll avoid putting a lot of pressure on yourself and your teams. It will also show that you can fulfill your commitments to all stakeholders associated with your company.
20 – Delegate as soon as possible the tasks that others can handle better.
Steve Jobs used to say that they hired smart people so they could tell them what to do.
As a business owner, you’re confident that you offer the best service or product to your customers. To ensure you continue to do so, delegate time-consuming activities and tasks that don’t add real value to others who excel in those areas. You’ll be able to offer your customers the best solution because you’ll be able to truly devote your time to it—all while having the best in-house solutions for your business for everything else (payroll, order management, administrative tasks, finance, etc.).
Reflections on“20 Financial Tips I Learned from 47 Companies as a CFO”
Hi, this is a comment.
To get started with moderating, editing, and deleting comments, please visit the Comments screen in the dashboard.
Commenter avatars come from Gravatar.