So, what’s stopping you from sleeping soundly? I would say like a baby, but we all know they sleep terribly …

Lying awake at night, with a thousand thoughts racing around your mind is a horrible state to find yourself. It leaves you exhausted and cranky with anxiety slowly clawing at your thoughts.

This is no way to function at the best of times, let alone when you’re attempting to navigate your business through financial and politically tricky times. As a business owner there can be many reasons sleep evades you.

Common business concerns often include:

• Loss of clients — are customers leaving your services, creating a financial deficit?
• Stagnation — is your business struggling to grow or move forward in direction?
• Denial — admit it, are you in full control of your accounts?
• Overheads — can you cover your business overheads and reliably pay your staff?
• Income — are you struggling to personally earn enough to live on?

How to start taking control of your business

If any of the above worries resonate, it’s not surprising you’re finding it tough to sleep at night. Any of these concerns are difficult to know how to overcome. It often feels like the wood and the trees are one, and the light is never going to show at the end of a dark tunnel.

However, there are pragmatic solutions. Try answering these simple questions:

1. How much money do you want to take home each month after tax?
2. Where do you want your business to head?
3. How are you going to reach your goal?

Financial Planning and Modelling

Once you’ve answered the above, it’s time to work backwards! How are you going to achieve your objectives?

If you want to feel in control of your business and profit, you need to make informed decisions based from your financial data. A financial plan and model helps you work out how much money you need, your expenses and what sources of income are available. In other words: a financial model helps a business budget, forecast and plan. It keeps companies in control of their business and finances, so they know they’re on track. And if they’re not — why they’re not on track so they can fix that problem.

What is a financial model?

Essentially it involves creating a spreadsheet (don’t groan – they don’t have to be terrible!) to act as a representation of some, or all of your business operations.

• A model can be used as a decision-making tool. It can assist in forecasting business decisions as you will better understand how much or how little money you have, or when more revenue will be coming in so you can invest, spend or save accordingly
• Financial plans can be used in strategic planning, cash flow analysis, sensitivity analysis or appraisal
• Models help estimate the value of your business
• A model is useful if you are looking to compare yourself with competitors
• They are very handy when it comes to selling a business

Considerations for a financial model

On a spreadsheet you need to add your business assumptions – these are educated guesses based from your historical data: numbers, trends, external conditions, industry and market. It’s important to consider situations or challenges that may arise and place these into your model to help plan for unforeseen eventualities.

Ideally you need to create a model which helps you understand how to plan for:

• Working capital: How much revenue do you need to make to support your business after paying out for your direct costs and operation costs?
• Revenue: Is the business continuing on the same trajectory as previous years? This helps plan when and how payments occur, whether prices are correct, how and when customers buy and areas of business stagnation
• Financial statements: Forecasting of financial statements helps with talking to investors, banks, auditors etc
• Growth margin: How much money goes towards delivering your product or service and how much is left over? This helps you plan to successfully develop your company
• Increase in demand: Do you have the manpower or software capabilities to cope?
• Operational expense: How much does it cost you to operate as a business? How much does each area cost e.g. admin, marketing, software etc?
• Significant decline: Look at why a product or service is no longer popular and use this to make an informed decision to find a successful solution

We know it may seem a tad daunting, especially if you have a lot to focus on, but believe us when we say how important a great financial modelling plan is to a business.

If you don’t know where to start, or just want to talk things through, please give us a call.

As cloud-based bookkeepers, financial planning is just one of the many services we offer, so chat to us and we can help you get the sleep you dream of achieving.

Call 01206 700 252 or email hello@clouditbookkeeping.co.uk and take control of your business finances.

Great finances = great sleep!