Why Finance should be the beating heart of your business

“There are so many business owners who don’t understand how important finance is to their business”, says Ben Mekie, owner of Acuity Associates. “For a lot of them, the Finance team is the guys who count the beans in the corner. In reality, Finance should be the beating heart of your business.”

On 25th September, Ben will be speaking about the importance of your Finance team at Vistage’s Peak Performer event. Register for the event here – and read on for a taste of what to expect…

Is it really all about sales? 

Generally, a business is valued at a multiple of times its profit. “If you want to sell your business for £30m, you need £5m in profits (say).”

He continues, “If your overheads are £3m, that means you need to generate £8m from your business activities. So, if your gross margin is 25%, that means you need £32m of sales to hit your objective. If your gross margin is 20%, you need £40m of sales. That’s a huge number of extra sales to achieve your desired outcome.”

Many businesses focus on their sales and marketing output when looking to drive efficiency and productivity. What they’re forgetting is the importance of what goes on “behind the scenes”. 

The effect of increasing gross margin percentage from 20% to 25% is hugely significant. This is what efficiency and productivity do – they drive a better gross margin percentage.

Ben gives the example of a business that was turning over £30m, with a £4m profit. “When we looked across the gross margins of all their products, the bottom 20% of their products actually lost them money”, Ben says. “They weren’t aware of this. They stopped selling those products and turned over £26m with a £5m profit.” So they did less work to earn more.

It took just four days to unearth this discovery – and the business had been selling these products for ten years. “This essentially means that not having a Finance Director in place cost them £10m in lost sales over the previous decade”, says Ben. “They felt a bit sick when they realised what a difference it could have made.”

“The stronger your finance team, the stronger your company health”

“Driving efficiency drives your gross margin, which makes it easier to make money”, says Ben. In his Vistage session, he’ll be taking attendees through exercises that help them to make this happen. 

However, help may be needed. “As a business owner, you’ll have an incredible understanding of your market and where in that market your products and services sit”, explains Ben. “It’s grossly unfair to expect that a business owner should be an expert in every single other element of their business – including finance.”

Having a strong finance team in place will enable you to improve your financial infrastructure (ie your reports, analysis, forecasts etc etc), allowing you to make better decisions. It will inform you as to whether there are certain loss-making products or services you should stop selling. It will help you to become more efficient, productive and profitable, to drive gross margin, and to move from a project-based business to a process-based business. 

Ultimately, it will allow you to increase the value of your business, whether it’s with an exit strategy in mind, or for you to pass down to your children. 

What do the best businesses in the world have in common?

The answer to the above question is quite simple, says Ben. It’s a budget. 

His Vistage session will include a checklist detailing what should be included in a good budget. “It’s things like a set of goals and objectives, a monthly forecast, a budget process, a forecast process, an integrated model that shows exactly where you are now, and what is needed to get to your target”, he says. 

A good budget continues with analysis of sales and gross margin – by brand, by product or service, by customer, by geography. “Do you have all of this analysis?” asks Ben. “And if not, do you want to be the best business you can possibly be? If the answer to this second question is ‘yes’, there’s no magic needed. You just need to focus on the financial side of your business.”

Ben’s Vistage session will cover all of this – and much more – in detail. Aimed at CEOs, senior management teams and board advisors who are keen to grow their businesses, it will include a number of tools that will help you to make finance the beating heart of your business – and help you to grow. 

To register for the event, click here.

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