Keeping fit: financial management for growth businesses

Strong financial management is a primary enabler in high-growth businesses.

Wellbeing 413984797
Guy Rigby
Published: 23 Mar 2018 Updated: 04 Aug 2022

In a scale-up, effective financial management is often overlooked. It’s far from the most entrepreneurial aspect of a business and, as such, it is often side-lined or under-resourced as the business pursues its commercial goals.

Yet without it, a growing business will quickly suffer, or even become a victim of its own success. Cash flow difficulties don’t only occur when sales are low: in fact, falling sales can often drive cash back into a business. An increase in sales or increased spending on innovation or infrastructure – all hallmarks of a scale-up – will put a greater strain on a business’s cash flow, as more resource and investment are needed to finance this swell of activity.

Cash is king: the truth behind the cliché

It’s little wonder that most scale-ups consume cash. No matter how innovative or exceptional they may be, access to cash is fundamental to the growth and success of a business. In short, cash is king, and in order to build a business that is both high growth and sustainable, founders must learn to live by this mantra.

It’s not always easy. Financial management is largely made up of those administrative tasks that entrepreneurs struggle to find time for, focused as they are on developing their product or winning that next all important customer.

Yet financial management is the glue that holds scale-up activity together, and someone has to be responsible for keeping and monitoring the financial score. Carried out effectively, it can do much more than help the business to survive.

Financial management: more than just income and outgoings

Effective financial management is more than a historic look back at the money flowing in and out of a business. It’s all about the future and, for a growing business, it should be fast, reactive, agile and forward thinking.

Monitoring the day to day progress of a business is, therefore, much more effective than reviewing its historical information. Whilst past performance can often be indicative of the future, a system that tracks real-time development will give an essential financial snapshot that is both more insightful and easier to respond to.

By tracking more than just ‘money in, money out’ and by monitoring a whole raft of useful financial information, businesses will be better placed to react to dips in cash flow and develop ways to avoid them in the future.

Financial snapshot: what should you be monitoring?

The sort of information that should be included in day to day financial reporting varies from business to business, but there are some touchstones that will be useful for most, whatever their size or sector:

  • details of daily or weekly sales or billings, often compared to last year, or to budget or forecast
  • bank balances – including totals of daily or weekly receipts and payments
  • debtor balances – the total owed to the business at the time
  • creditor balances – the total owed by the business at the time
  • a short-term forecast showing the likely receipts and payments over the next week or month, as well as the resulting bank balance

Building a more comprehensive reporting system will mean looking at your business and deciding what information is relevant to you, but the basics are an excellent starting point.

Measuring progress: Key Performance Indicators

To get a more accurate snapshot of your own business’ commercial and financial progress, it’s important to look past purely financial activity and track some Key Performance Indicators (KPIs) as well.

Paired with financial information, these will help to deliver a true insight into what is happening in the business, highlighting successes, identifying trends and exposing potential bumps in the road.

In conclusion, it’s worth remembering that it’s not just bad businesses that run out of cash. Your financial management capability will often be the key that both unlocks and underpins your scale-up growth and potential.

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.


This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.