Biggest Mistakes Business Owners Make With Their Finance Team

What are the biggest mistakes business owners make when working with their finance team? It is a hard for business owner because most of the time, finances and running a finance team are not an area people have a natural connection to in their business. What do I mean by this? You will often get into an area of business because of a passion for the industry not for the passion of finances and numbers.

This article will help you navigate the pitfalls of not understanding what you should expect from your finance team member/s.

Timely and Accurate Financial Information is Crucial

We cannot overemphasise timely and accurate financial information is a key element in helping the management team to make informed business decisions. It is natural for a business owner to work in different sectors of their business. They generally started with being exceptional at what they do whether it’s being an excellent architect, a brilliant builder, a skilled hairdresser, etc. From their talents and skills in their field or craft, business owners grow and evolve into running the architectural firm, the construction company, or the salon primarily because they are technically great at what they do.

Selling or marketing, discussion your product with your clients and collaborating with your team will come naturally for a lot of business owners. This leaves the finance department which you might fill with dread in having to meet with, discuss and understand what they are talking about!

Business finances may not come naturally to a lot of business owners and to make it worse, they may not know what they need to get and how they need to get it. It is the same reason why people are scared they will get ripped off by the mechanic…because they don’t know what to look for and what to ask.

This is something crucial to discuss and understand for every business owner.

Expectation # 1

Receive accurate and timely information from your finance team which includes key elements such as balance sheet, profit and loss and your cash flow.

Accuracy of Balance Sheet

How do you know your financials are accurate? Start with the balance sheet.

In terms of accuracy on your balance sheet, your balance sheet is made up of three elements: 

1. Assets - what you own
2. Liabilities - what you owe
3. Equity – the difference between those two, ideally, you want more assets than liabilities.

To ensure you have an accurate balance sheet, all the assets and liabilities need to be real and verified. If your finance team can’t justify an asset or liability it needs to become a question. Accountants won’t tell you this but when reviewing the accuracy of your financials they will always start with the balance sheet, so should you.

Expectation # 2

Ensure all balance sheet items are understood and can be justified.

Profit and Loss (P & L) Statement

Many business owners instinctively look at their profit and loss statement driven mostly by their main concern of whether they made a profit or loss, I don’t blame them, I do the same thing!

The reason balance sheet accuracy is our starting point is if you have an accurate picture of your balance sheet, it will also give you an accurate P & L statement as well. Your P & L is your revenue minus your expenses.

If your revenue is greater than expenses, it means you gained profit. If your expenses are bigger than your revenue, you suffered loss.

From there it is a question of accurate allocation of revenue and expenses on the P&L. For examples, “Is the telephone bill going to the telephone account?” “Is the revenue going to the right account?” “Are wages going to the right account?” Taking care of all those elements will guarantee that you’ve got your P + L accurate. 

Communicate a Deadline

If we were to give you the newspaper from the six weeks ago would it be of interest to you? Probably not, unless you know someone who was in the paper that day. It’s a similar principle with your financial reporting from your finance team.

Timeliness is just as important as the accuracy element. There is no point in getting financial reporting, for the end of June, in the middle of August. It's too late. That's six, eight weeks after the actual month has occurred.

At the very least, you need information within weeks of the month being completed.  Timeliness is key. You need to have your finance team working in a way that ensures they not only get accurate information to you, but timely information.

A frequent mistake we see business owners make is they don't know how to communicate to the finance team they need accurate and timely financial information. Sometimes because they don’t know they need it and sometimes because they don’t know how to ask it. They may not be confident verifying the financial information they get. So, you must be firm in terms of expectations around accuracy and timing of financial reports.

In terms of timeliness, you need to set a clear expectation around when you want to receive the information. Let us look at the steps of how you can make that happen.

All source data needs to be entered into your finance software.

The finance team need to the following as quickly as possible:

1. All sales invoices are entered
2. All supplier invoices are entered
3. Payroll is entered and reconciled
4. All bank accounts, credit cards and loan are reconciled

When do you do financial reporting? How many days after end of month (EOM) do you want to receive the reports?

It will depend on what is practical for your business. As this will dictate the expectations you set on with your team. We have clients who close off by the second business day of the month others who close off by the 10th business day of the month.

A key factor is the cycle of when you get information from your suppliers and the resources you have within your finance team.

Expectation # 3

Set a target days after EOM for when you will receive your financial reporting.

Balance Sheet is the Story of Your Business

Your balance sheet is the story of your business. It's a legacy of your business. As a business owner you must understand its core elements. The good news is we have courses that look at understanding your balance sheet in detail (refer to Financial Linguistics on the Growth Centre).

Expectation # 4

It is your responsibility as a business owner to read those financial reports. And if anything doesn't make sense, you should go straight to your accounts team and your finance team to get clarification. This will also allow you to gain confidence for your learning journey in understanding financial information.

Using Financial Information to Make Informed Business Decisions

After the core elements of accuracy and timeliness of financial information, we use this information to make informed business decisions. 

This is where you as a business owner and your finance team work together to achieve this outcome. Work with your finance team and ask them the things you need to be aware of.  From there, determine what sticks out to you, and what sort of feedback do you get from them in terms of areas for concern and opportunities to take advantage of. 

Expectation # 5

Work with your finance team to take action with the information you have at your disposal.