A ‘Financial Roadmap’ is like a GPS guide, to help anyone in business to set a path to desired profit and cash flow management.
There are some simple tools and methodologies to produce a ‘Financial Roadmap’ including:
- Profit & Loss Budget
a. A Profit & Loss Budget is a documented plan of future sales, costs, overheads and finance costs, setting out in black and white what you expect them to be.
b. It helps to set a Budget because it gives you targets to aim for, helps to control spending and improves profitability.
c. Budgeting Tips
i. Set realistic targets – include extra costs and overheads required to deliver sales targets.
ii. Support targets with other plans such as marketing, sales and staff/resources. What are you going to do to achieve the sales targets?
iii. Separate fixed expenses from variable costs i.e. standard monthly overheads, such as rent, wages etc. from direct cost of items you sell or labour and material on jobs.
iv. Allow for contingencies – not everything goes exactly as planned!
d. Example of a typical Profit & Loss Budget – we gave a tour of a very simple and typical Profit & Loss Budget (spreadsheet based, not subscription software) - Break-even – knowing your ‘break-even’ sales point is a great way to avoid losses and is the basis for targeting sales and profit and understanding your costs and overheads.
- Cash Flow Forecast
a. It helps to prepare a Cash Flow Forecast because it’s difficult to predict your cash position in your head! Simply plotting it out in black and white, provides a clear picture of what will be the ‘peaks and troughs’ in your cash position, enabling you to be proactive before it becomes an issue.
b. The Cash Flow Forecast differs from the Profit & Loss Budget because it’s based on timing of cash in and out, whereas the budget accounts for sales and costs in the same month, even though they may not actually be paid in that month. This helps you to get a clear picture of both cash flow and profitability.
c. Cash Flow Forecasting tips
i. Compare actual against forecast weekly or monthly depending on the situation, so you can gauge how accurate your forecasts are.
ii. Investigate significant negative variations and take corrective action.
iii. Update your forward forecast to stay in control of cash flow.
d. Example of a typical Cash Flow Forecast – we gave a tour of a very simple and typical Cash Flow Forecast (spreadsheet based, not subscription software). - KPIs
a. Non-financial KPIs are the most useful to set targets that will impact sales.
b. We shared some examples of typical ‘non-financial’ KPI reports in graphical format, so that a business owner can quickly see where things are on/off track. Examples were:
i. Marketing scorecard
ii. Quote scorecard
iii. Labour productivity scorecard
iv. Staff & Material Costs % of Sales scorecard - Reporting
a. Minimum standard reports
i. Profit & Loss Statement
ii. Balance Sheet
iii. Cash Flow Forecast
iv. Accounts Receivable Analysis
v. Accounts Payable Analysis
b. Additional Useful Reports
i. Profit & Loss by division, category, customer, salesperson etc.
ii. Detailed Job Profit & Loss Report
iii. Detailed Stock Profit & Loss Report - Systems
a. Have you got the right systems in place?
b. Are they set up right?
c. Do they provide information for good decision making?
d. Do they save time/money? - Business Grants
a. Examples of some available
b. Eligibility
c. How to get them
All of the above is typical of what we work through with our business clients, to help them achieve their desired profitability for the year and avoid cash flow problems.
If you’d like to chat with one of our friendly CFOs and see a demonstration of the Financial Roadmap, they are happy to spend a complimentary hour ‘one-on-one’ to discuss your plans and goals for this financial year and how you can turn them into reality.
