Poor financial visibility is stunting growth opportunities among Britain’s small businesses. Our new research reveals the most common blindspots and how they could be fixed to supercharge your growth prospects. 

Outdated information and rough calculations are casting doubt over small firms’ finances and stopping leaders taking advantage of opportunities to grow. Many have no accurate way of gauging their own strength, with two in five (40%) small businesses suffering from financial uncertainty. This is delaying investments in everything from new jobs to materials and marketing and leaving the hardest working section of our economy missing out on the benefits of improving conditions.

Our research found a direct link between access to useful financial information and success, with businesses that had up to date accounts growing twice as fast in 2015 as those whose accounts were nine months old or more (8% turnover growth compared to 4%). With the average small business leader relying on four-month-old information, it’s no wonder they’re investing cautiously.

Business owners don’t need a maths degree, but learning to use financial signals to inform decisions, or getting someone else to do it for you, could be the difference between getting by, and achieving your ambitions.

So what are the most common financial blindspots and what can be done about them?

Real time management accounts

Accounts can be invaluable tools, but only if they’re presented in a genuinely useful way. Too many accounts are prepared by accountants, for accountants. Insist on accurate information presented in a way that makes sense to you.

Our study found only 6% of small firms currently use up to date accounts. Yet business owners are well aware of the need to account for upcoming incomes and expenditures when making investment decisions.

Our research found that many make up for a lack of professional insight by combining their bank balance with quick calculations of imminent invoices and payments. This is time-consuming and leaves plenty of room for human error, which isn’t necessary when technology can do the work. Online real time accounts act as an intelligent bank balance with the added gift of foresight, totting up all upcoming payments and debts.

Forecasts

Good forecasts are the perfect companion to accurate accounts, combining clues to the future with learnings from the past. Yet our research found that more than half of UK small businesses (55%) don’t use any form of forecast. This could have a serious effect on prospects, as those that did use forecasts grew by a third more than their peers in 2015 (9% compared to 6%).

Don’t be fobbed off by generic forecasts that don’t fit your particular business model. For example if you collect data on how often you win a quote, and how long each takes to convert, plus any seasonal differences, you can use small clues about future incomes to gauge what’s most likely to happen. Work in a reasonable amount of conservatism to protect your cashflow without underestimating your spending power.

Also think about the most useful timescale for your circumstances – how far ahead do you need to see? Be aware that while there’s nothing wrong with stake-in-the-ground long-term forecasts they won’t help with operational decisions.

As the biggest cost to most businesses it’s worth paying extra attention to forecasting expenditure on wages. Small businesses on a fast growth path are often in the fortunate position to offer staff quick career progression, but this comes at a cost. It can help to plot employees’ likely payrises and any extra rewards like bonuses. Like all forecasts this needs regular revisiting to remain useful.

Take time to focus on profits, not just turnover

In the day-to-day realities of running a business it’s all too easy to focus on getting income in the door, rather than profit margins. In fact the pressure to win income at any cost can build as young firms grow and owners take on the responsibility of more people’s livelihoods.

But unless you know the margins at work in different jobs and understand the levers you can pull to improve them, it’s easy to get stuck in a cycle of hard work and small rewards.

Business owners need time to think as well as access to the right information, and time is in very short supply. With small business owners currently spending more than two and a half hours a week on everyday financial management, improving your systems and getting better support could free up enough time to review your profit margins and regularly improve them.

Topline growth and bottomline benefits, plus the gift of free time every week – not a bad return for taking a fresh look at how to manage your numbers.

Find your own blindspots and learn how to get your financial management bang on the money with our quiz or join the conversation at #OnTheMoney



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