Don’t Let These Mistakes Drain Your Bottom Line: 6 Finance Team Blunders a Finance Director Can Avoid

Last updated 1st March 2023

Why your business isn’t as profitable as you think it should be.

Is your businesses experiencing growth, but the cash flow is still tight? You can’t quite understand why? There shouldn’t be any finance issues.

According to your Profit and Loss account (P&L), sales are up and your business is profitable, so why is cash flow not mirroring the success of the business?

In our experience, you are likely to be very focused on the P&L, and possibly also the budget. You probably also have a bookkeeper or finance manager in place who has been with you since the beginning, and has grown alongside the business.

But it’s now reached the point where this person just doesn’t have the expertise required to spot issues and problems in the finance department and the business. The business has grown beyond their capabilities.

A place for finance issues to hide?

At this stage, your finance function is in danger of losing control. As a result, the Balance Sheet may become a place for finance issues to hide.

This nearly always happens accidentally, but it can also be deliberate. Either through fraudulent intention, or more likely, as a result of an out of depth bookkeeper/finance manager reacting to pressure from above. An untrained finance manager may enter items into the Balance Sheet so that the P&L ‘looks ok’ to keep a driven MD happy. Without careful management this can lead to issues further down the line.

What is the difference between the Profit & Loss and the Balance Sheet?

At this point it might be worth explaining the key difference between your Profit & Loss and your Balance Sheet.

The P&L account is a report showing the performance of your business for a specific period. It summarises your income, less all of your costs leaving your profit for that period. Business owners tend to keep an eye on this one!

The Balance Sheet is a statement of your company’s assets and liabilities at a given date. This net amount gives an indication of the overall financial health of your business (for example a negative net figure would indicate the company was loss making at some point). Issues and discrepancies in the Balance Sheet can become hidden in here. Because this report isn’t about the day-to-day running of the business, it often gets overlooked until it is too late.

How to spot the key finance issues

What can you do about this, without becoming an accounting expert yourself? As the MD or CEO, your focus is naturally on growing and developing the business. Finance and accounting are unlikely to be in your core skill set. This makes it hard to spot errors or even know where to look and what to question.

“I don’t know what I don’t know.”

To help you make sense of your business, we’ve put together an easy-to-follow guide outlining six questions for you to ask your finance manager to help you quickly discover any finance issues that might be hiding.

Our guide will tell you which six standard accounting reports to request, and the tell-tale signs to look for in each of them. We also outline suggestions for next steps to take should you uncover any potential issues.

This guide is designed to be simple and easy to use. If you don’t have time to go through it, or if you find it does uncover any unexpected issues, we recommend getting in touch to find out if a Fractional Finance Director would be useful.

Download our free guide here to quickly and easily find out why your business isn’t as profitable as it should be – and how to resolve it.