How to get control of your company’s finances

“The financial pressure and stress were terrible,” she says. “That large contract changed who Visiontec was, and I knew we were very quickly going to grow outside my capability to manage it.”

Visiontec offers a wide range of security equipment and systems, including x-ray scanners, metal detectors, protective suits, and gear to detect chemical, biological, radiological, nuclear and explosive threats. The company not only supplies the equipment but also designs, installs and maintains security systems in a variety of government and private sector buildings and installations.

Experiencing rapid growth

Growing terrorism threats, combined with the emergence of new technologies and the need to update equipment purchased after 9/11, had led to a surge of new business. The company’s sales hit almost $11 million in 2015, up from $2.5 million in 2012.

However, that torrid pace of growth threatened to swamp the company. Rodi says she was pouring all the company’s money into hiring employees, buying inventory and managing projects.

That led to frequent cash flow squeezes made worse because she was making contract bids that didn’t leave enough leeway for cost overruns. She also had large customers who were consistently late in paying bills, she says.

Her line of credit was stretched to the limit and she withdrew money from her RRSP to fund her business. That’s when Rodi turned to a BDC financial management coach for help. A working capital loan from BDC provided the breathing room she needed to make much-needed improvements in managing the business’s finances.

“I probably didn’t realize how bad it was. After we turned the corner and took off, you could look back and say, ‘My God, we were not in good shape.’”

Set up a cash flow planner

For Alka Sood, a BDC Business Consultant, it’s a familiar story. Sood helps business owners make sense of their financial statements and the jargon used by accountants and other advisors. Then, she sets up some easy-to-use tools that allow them to monitor financial data and use it to make better decisions.

The first of these tools is a cash flow planner. For smaller businesses, Sood gets entrepreneurs to enter into a spreadsheet projected revenues and expenses for the following 13 weeks, figuring out when money will come in and go out, and then update it each week. Larger businesses with stable cash flows can make their projections on a monthly basis, she says.

Anticipating tight cash flow

With the cash flow planner, business owners get a handle on when payments from customers are expected versus when payments to suppliers must be made. Then, they can anticipate times of tight cash flow and plan for projects and financing needs.

“It allows them to say: ‘Okay, I’m going to be $5,000 short four weeks from now,” Sood says. “There are no red flags or bells going off. I know it’s going to happen. So, I can hold a sale, or get some breathing room from a supplier, or put it on my line of credit. But I know. I’m less worried.’”

“It forces you to sit down and think ahead,” she adds. “You can plan your projects, such as hiring a new person or buying a piece of equipment, and then go to the bank and get a business loan.”

Create a financial dashboard

The second tool is a financial dashboard. It shows you at a glance four or five key performance indicators on the financial health of your business.

These indicators would typically include your sales pipeline, average days collection (for your accounts receivable) and average days payable outstanding (to your suppliers). Other indicators will depend on what type of business you are running. Some examples are inventory turns for a retailer/wholesaler, exchange rates for an importer and percentage project completion for a construction company.

Once the cash flow planner and financial dashboard are in place, Sood typically looks at the company’s cost structure and product pricing—two areas where many businesses are leaking money.

An attitude adjustment

Part of what Sood does is help business owners adjust their attitude toward money and numbers. “The numbers tell you the truth about your business. You need to embrace them,” she says. “It’s your company; that’s your responsibility.”

At Visiontec, Rodi admits her primary expertise was sales and she had a hard time understanding financial statements or the financial ratios her bankers talked about.

Her coach helped her to build the financial acumen and confidence she needed while getting Visiontec’s cash flow under control. The result was a more solid company, better positioned for growth. Rodi also felt a lot less stress. “We got a better handle on our finances and that has helped us to grow the company.”

3 ways to improve your financial management

1. Create a cash flow planner

On a spreadsheet, record projections for inflows and outflows of cash. Your planner allows you to forecast periods of tight cash flow and plan for financing needs and projects such as buying a piece of equipment.

2. Set up a performance dashboard

Create a dashboard where you can monitor four or five key performance indicators (KPIs) for your business. Typically, the KPIs will include your sales pipeline, average days collection and average days payable outstanding.

3. Review your cost structure and pricing

One way to control your costs is by getting three quotes from different suppliers for all your important costs, including overhead items. Another is by making sure you’re being diligent in bill collections, and taking the maximum number of days to pay your bills (without being late). In pricing, Sood says many companies fail to take all their costs into account when setting prices and end up losing money—or, worse, not knowing whether they’re making a profit.