Controlling a company’s finances when it still small and employing only one or two workers is relatively easy. The owner will make it a priority to ensure that customers pay on time for the goods or services they have received. However, as the company grows there inevitably comes a point when the owner is unable to continue acting as salesperson, bookkeeper, secretary and cleaner. He or she has to delegate responsibilities, which is where things can start to go wrong.
Keeping control
Along with sales and marketing, controlling a business’s finances is essential if the company is to thrive. How many companies have failed when they have full order books and are expanding rapidly? Cash flow is the lifeblood of all companies, no matter whether they are a small family run business or a multi-national conglomerate. If no one is chasing debtors they will, for the most part, not bother paying. Therefore, having an effective credit control system in place is an absolute essential.
Having an accurate business plan in place is a basic requirement; in addition to keeping detailed accounts; the two go together. The business plan acts as a map indicating in which direction the company should be going, while the real-time accounts show where it actually is. A dramatic fall in sales will impact severely on its cash flow and may restrict the company’s ability to remain solvent. However, by identifying such problems in advance, the owner is able to make strategic decisions in a timely manner, based on sound information.
Videos from Tunde Folawiyo, the managing director of the Yinka Folawiyo Group, offer an insight into the mind of the man who is amongst the most successful businessmen in his native Nigeria.
Currency Exchange
When a company of any size begins to trade internationally, a whole new set of financial issues are brought into the mix. When calculating the price of a product that is to be exported, the sales team need to know what the exchange rate will be between the domestic currency (e.g. pounds sterling) and that of the country in which the product or service is to be sold at the time the sale takes place (e.g. Euros). Exchange rates sometimes fluctuate significantly and it might be that a loss is incurred even before the client receives a sales invoice. The solution to this problem is to buy forward, which means the company buys a sufficient amount of Euros to cover the value of the sale as soon as the order is received. How the exchange rate fluctuates from that point on becomes irrelevant.
Global tax implications
There are common tax regulations concerning the purchase and sale of goods and services within the EU, but records have to be kept and submitted to HMRC on a regular basis. When trading with countries outside this bloc, however, care must be taken to ensure the company pays any import duty and VAT due on imports. Duty varies from country to country and in some cases the cost can be significant. It is therefore important when estimating the sales price of a product that includes parts that have been imported that any duty is accounted for in the costing calculation.
