Four finance mistakes that can hold back a growing business

1 Focusing on profit without watching cash

A profitable business can still struggle to pay its bills. Profit measures revenue against costs; cash flow reflects when money actually enters and leaves the business. Those timings do not always match. British Business Bank explains the distinction.

Imagine delivering £100,000 of work in a month, with customers paying 60 days later. Depending on how the revenue is recognised, those sales may appear in your accounts before the money reaches your bank.

Meanwhile, salaries, suppliers and other commitments still need paying.

A rolling 13-week cash-flow forecast can help you see that gap before it becomes urgent. It should reflect realistic payment dates, expected spending and upcoming tax liabilities, with someone responsible for keeping it current.

It also helps to be clear about who raises invoices, who follows up overdue payments and when cash is reviewed.

The useful question is: will the money be available when the business needs it?

2 Making decisions without useful financial information

Your accounting software may contain plenty of data. Whether that data helps you make decisions depends on how accurate, current and relevant it is.

Knowing last year’s turnover does not necessarily tell you which customers are profitable, where delivery costs are increasing or whether a particular service is worth growing.

Useful management information should help you answer questions such as:

• Which customers or services contribute most to profit?
• Where are margins improving or deteriorating?
• How does actual performance compare with the plan?
• What explains the difference, and does it require action?

A manageable monthly review might cover revenue, gross profit, operating costs and a few measures that matter to your business. Comparing results with the budget helps you understand what has changed and decide whether your plans need adjusting. ICAEW’s guidance on monitoring business performance makes the same connection between timely information and better decisions.

The review becomes useful when it leads to a decision, with someone responsible for following it through.

3 Growing without understanding the cash required

A new contract can be good news and still create financial pressure.

You may need to recruit, buy equipment or increase delivery capacity before the customer pays. Faster growth can therefore increase the cash needed to keep the business running. British Business Bank highlights this risk for growing businesses.

Before committing to a significant investment, consider both the expected return and the timing.

• How much must you spend before income arrives?
• What happens if sales build more slowly than expected?
• Could the business cope if demand grows faster and delivery costs rise sooner?

A simple financial model can compare your expected outcome with a stronger and a weaker one. For example, you might test what happens if revenue comes in 20% below plan or customers take longer to pay.

These scenarios are not predictions. They help expose the assumptions behind a decision and show where you may need more headroom.

4 Waiting until the business is bigger to put processes in place

Informal processes can work when the founder knows every customer, approves every payment and keeps track of the bills.

As the business grows, relying on one person’s memory becomes harder. Invoices go out late, spending is not always visible and the team needs the founder’s involvement in routine decisions.

The answer is proportionate processes with clear ownership.

That could mean:

• Agreed limits for spending and payment approvals.
• A consistent process for invoicing and chasing payment.
• A monthly timetable for checking and closing the accounts.
• Regular cash-flow and performance reviews.
• Documented responsibilities so important tasks do not depend on one person.

Put these in place to address the gaps you actually have. A small business does not need the finance department of a large company, but it does need processes that can support its next stage of growth.

Where a fractional CFO can help

Good bookkeeping and accounting support provide an important foundation. Depending on the services agreed, your accountant may also help with forecasting and commercial decisions.

A fractional chief financial officer, or CFO, provides senior financial leadership on a part-time basis. That can be useful when the business needs more regular support with planning, financial controls and growth decisions, but does not need a full-time finance director.

Their contribution might include building a cash-flow forecast, improving management reporting or testing the financial consequences of a major investment.

The starting point should be the gap in the business. Some businesses need better bookkeeping or clearer credit control first. Others need someone who can help the leadership team interpret the numbers and plan ahead.

Four questions for your next business review

Before adding another report or hiring more support, ask:

• Do we have a realistic view of our cash position over the next 13 weeks?
• Do we know which parts of the business are driving profit?
• Have we understood the financial impact of our next major growth decision?
• Could our finance processes cope with the growth we are planning?

If an answer is unclear, that gives you a useful place to start.

At Adesse, we look at how finance connects with sales, delivery and the wider growth plan. A decision to win more work needs to account for the cost of delivering it. A recruitment decision needs to reflect both future demand and the cash available.

Getting those connections clear helps you choose what needs attention first and where specialist support would genuinely help.