Cash Flow

The 5 Finance Reports Every Trades Business Owner Needs

The 5 Reports Every Trades Business Owner Needs

We've lost count of the number of tradespeople we’ve talked to who think their annual accounts give them enough financial information to run their business. The fact is your annual accounts are a historical snapshot of your business at a particular point in time. They don’t tell you about the future.

If you want to have a successful trades business, there are no two ways about it. You’ve got to become proficient at managing the finances. It’s either that, or crash and burn. Put simply you've got to be able to read and understand your financial dashboard.

What exactly is a  financial dashboard?

Think about the dashboard in your van. It has a speedometer, a petrol gauge and an oil pressure gauge. These three instruments measure the vital signs of your van. They tell you how fast you’re going, how must fuel you’ve got left in the tank and the state of your engine. If any of these instruments were to break down (or you didn’t know how to read them) pretty soon you’d find yourself with a ticket for speeding, stalling or blowing a gasket.

A financial dashboard is just like the dashboard in your van, and is made up of these five reports:

Annual and Monthly Budget: This is kind of like a pre-programmed sat nav. It’s forward looking, projecting where you plan to go. If you don’t have a decent budget, you might as well forget starting a journey in your van.

Monthly Profit and Loss Statement: Once you’ve started your trip, are you staying on course? A profit and loss statement tracks your performance against the budget.

Weekly Cash Flow Forecast: Just like your annual accounts, your profit and loss statement is a lag measure. A rolling sixteen-week cash flow forecast gives you a vital lead measure. You take your opening cash balance, add your projected receipts, and deduct your projected payments. It functions just like sat nav, telling you what’s coming up, providing time for you to take another route if necessary.

Profit and Loss Forecast: This is another important lead measure. A profit and loss forecast creates a forward-looking picture of your income and expenses. What’s great about a profit and loss forecast is you can play with different scenarios and see how they’ll impact the year.

Balance Sheet: Your balance sheet captures the overall health and financial strength of your business, telling you its net worth, what money you owe to your creditors and how much you are owed.

These five reports work together like the dashboard in your van. They help you to plan for the future growth of your business. Of these five reports, we’ve found the cash flow forecast to be the most helpful when it comes to tactical decision making. So much so that we make a point of updating our cash flow forecast every Monday morning to ensure that we’re maintaining our cash levels.

These are the 5 financial reports we check routinely at Whitebox. Do you use any of these reports? Let us know in the comments box below.

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Stress Free Business Finances

Stress Free Business Finances

A report by business innovation charity Nesta revealed that 42% of business owners say dealing with finances is the most stressful aspect of running a company. And a staggering 17% added that the stress has made them unwell.

This is in line with what many of our customers say to us. Making sure they get paid on time and keeping on top of the paperwork (by which they mean finances) often keeps them up late at night.

We’ve been there ourselves and it’s not fun. Which is why. over the years, we’ve developed a few habits which we’ve found make for stress free business finances.

Here’s what works for us.

1. We Update Our Cash Flow Forecast Weekly

First thing Monday morning, Denyse updates our cash flow forecast with the results from the previous week. She then looks at our sales projections to check if they’re still in line with our forecast or whether she needs to make any adjustments.

For example, if a customer wants to order a van racking system and has had to delay the purchase for a week while s/he waits for a late payment from customer, Denyse adjusts the cash flow forecast to take account of this.

2. We Check Our Bank Account Daily

We check our bank account once a day to make sure everything is as it should be i.e. no unexpected payments and monies have been received as promised. Because we update our cash flow forecast weekly, there are rarely any surprises.

3. We Make Sure Cash Never Dips Below A Certain Level

You know that old saying cash is king? Our aim is to have six months’ worth of running costs in the bank. We’re not there yet. (Few businesses are). But as we work towards achieving this goal, we make sure the amount of cash in the bank never dips below a certain level. As our turnover increases, so does the amount of cash we maintain in the bank.

4. We Pay Suppliers On A Set Day, Weekly

When Denyse does our weekly cash flow forecast, she also thinks about which bills we’re going to pay that week, and whether we need to defer any to the following week because, for example, we’re waiting on late payments.

5. We Know Exactly How Much We Owe Our Suppliers

Mark’s wife, Sophie, keeps our books up to date so we know exactly how much we owe our suppliers at any one time. It wasn’t like this until we brought in Sophie. We make sure we’ve made provision in our cash flow forecast to pay our suppliers when the payment date falls due.

6. We Set Aside Money For VAT Every Week

Every week, we make sure we’ve made provision for paying the VAT when it falls due. Some of our customers find it helpful to transfer the VAT element of their income into a separate bank account, set up specifically for this purpose. Then when the VAT bill falls due, they use the funds they’ve accrued in their “VAT account. to pay the bill.

7. We Use Receipt Bank To Record Receipts

Receipt Bank is a handy app which we use to photograph receipts. These are then, as if by magic, stored digitally and uploaded to our accounting software. Many of our customers use this app too. This has put an end to scrabbling around for lost receipts when it’s time to prepare the annual accounts.

This is how we’ve made business finances stress free. We’d love to hear your tips and suggestions. Let us know in the comments box below.

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