Finance: where cash is king and you need to know your numbers

Published: 24 Jul 2023

The latest in our series of Business Briefing Notes covers Finance and is authored by Paul Hampson, BA, MSc, FCA. Currently UG Course Director for Accounting and Finance at Leeds Business School, Paul has been a chartered accountant both in practice and as a business owner and a Finance Director, and has also spent several years as a business coach.

In his briefing note, Paul sets out to de-mystify some of the jargon around the world of finance and financial management and provide some helpful, clear and practical tips to show business owners how to keep control of their finances and reduce some of the stress associated with cash management.

The article refers throughout to the two well-known mantras of Cash is King and Know Your Numbers and Paul does a deep dive into why both these things are important, and crucially, how to make them work for you to secure a sustainable financial future for your business.

Cash is the lifeblood of the business

Did you know that, every year, over 300,000 businesses are created in the UK? Worryingly, over 80% of them are destined to fail. ‘Cash problems’ are blamed for the majority of these failures but it is important to identify, understand and learn from the multitude of factors that lie behind these two words. Insufficient capital, poor product pricing, uncontrolled growth and poor cash management and record keeping are the five characteristics of a business that fails. Identifying, eliminating and building resilience against them is key to securing your business’ finances.

Paul sums up, “If there is a shortage of cash, that shortage is not the issue; the shortage is….a warning light of something that is going wrong in the business somewhere that needs to be managed.”

ABCD Analysis

The article explains what an ABCD Analysis of your customer base is, where A stands for Awesome and D stands for Dead and how this type of review can help you run your business more efficiently. Paul suggests that once you have carried out this customer review, it can be helpful and illuminating to flip it to review your own performance as a customer through the eyes of your suppliers.

A vital tool in the armoury is the measurement of cash flows

With top tips for controlling cash and an explanation of how to provide yourself with truly insightful financial analysis, Paul explains the importance of not only knowing your numbers, but understanding the story behind the numbers. You will find plenty of jargon-busting in the Briefing Note too, with clear explanations of financial management terms, such as how to know your Gross Margin Ratio from your Account Receivable Ratio (what they are and how to calculate them too).

There is also a handy and practical brief on how to use financial metrics to ensure optimal productivity & sustainability of your business. Read Paul’s Briefing Note in full here [link].

One of our vision statements is to help members build a better business and to that end, you can find all five Business Briefings available so far to download here.