Finance is the backbone of any industry, however big or small. One of the common reason many businesses fail is due to the lack of proper financial management. By focusing on the financial aspect of your business you stand to improve your business profits. What are the main financial aspects that you should focus on? Like the five elements of nature (space, fire, air, earth, and water) these are the five elements of finance that can help your business to perform well financially.

Space ️– Like how there is no end to space, your business revenue can be so vast, having no limits to the growth of your business top line. So the space element of finance is revenue. Reflect on the various ways to grow your top line.

Fire – If your business does not meet sufficient margins, then you feel like your business is on fire! Therefore, simply stated business margins are the fire element. Think about the ways you achieve better margins.

Air – We cannot live even for a moment without air! So the air equivalent of your business is indeed cash as you cannot do business without money. Cash is oxygen for your business. Ensure there are no cash shortages in your business.

Earth – The fourth element is earth and what I would like to equate it to are the resources of your business. Without the requisite resources like capital, assets, technology, customers etc. your business may not succeed as well. You need to nurture and nourish them for better growth.

Water – The essential one! I relate this element with people - your team as they are the ones who can deliver operational efficiency in your business. They are the key, as they are the ones who make the business. Even if you are a solopreneur, you are the most essential element of the business. Based on the above, I would encourage you to take a moment and think on:

How are you making the most of the five finance elements in your business? What is your strategy to grow these five elements? How would you leverage these five elements to gain the most for your business? Take stock and burn the financial inefficiencies in your organisation. Let the virtues of your business triumph. Some of the financial inadequacies you can get rid of for peaking the financial potential of your business are:

  • Cash mismanagement
  • Incorrect pricing
  • Lack of financial strategy
  • Not controlling costs
  • Financial indiscipline and non-compliance
  • Premature scaling
  • Wasting efficiencies of human capital
  • Resource mis-utilisation
  • Non mitigation of risks
  • Poor financial management

By efficiently handling the money matters of your business, you would feel in better control of the financial affairs of your business. So in this chapter let us check on the following financial aspects that can help in the financial growth of your business.

I. How to control the costs of your business and manage the spend?

II. How to track the financial performance of your business?

III. How to manage your cash flow?

IV. What do you need to do from the finance perspective to scale your business?

Spend management

During challenging times, what you could control is the spend. Depending on how well your business is performing and the quest for profit, you can manage to control the cost-effectiveness of the expenses as per your business requirements. If a business exists, there will be expenses. By exhibiting prudence in your expense management, you will be in a position to take charge of the expenses and have better control on the financial situation of your business. Here is an acronym that can act as a check list before you decide to incur any spend for your business. What you need to remember to recall easily is CARE where

C stands for Control
A stands for Alternative
R stands for Required
E stands for Enhance

C – Control
Is there a way you can control the amount that is being spent? What are the control mechanisms in place so that the expense does not become too huge to manage? For example, let’s say that your business provides food reimbursement to staff who work late. Would you reimburse their food bills if they ate at a 5-Star hotel? Would you reimburse their bills if they claimed every day? How do you know the food bill is only the cost of their food and not their friends as well? So how are you controlling this spend? You probably want to set limits, have an approval mechanism in place, mention about the food reimbursement in your policy document etc. In other words, what are the various steps you are taking to control your costs.

A – Alternative
What are the alternatives to the expense under consideration? What is the current market price for that expense? Have you evaluated other options that are cost-effective? What about comparative quotes? For instance, if you are considering getting health insurance for your employees, you may have evaluated different options from insurance agents. Have you also evaluated if procuring insurance directly from an insurance company is better for you? Remember that while cost is important, cost alone need not be the deciding criteria. Continuing with the same example, if you feel that routing the insurance from an agent is better because you are understaffed and the agent liaises with the insurance company for your claims etc., therefore you feel it is better to route the insurance through an agent. So while evaluating alternatives, look at the holistic picture.

R – Required
Is the spend that you are considering even required? What are the possibilities for you to do away with the spend? Giving you an example again. In a multinational, for a few years, to encourage team bonding, each month they used to take the employees out for lunch to a 5-Star restaurant. This practice not only affected productivity but also didn’t make the team bonding better. Hence the management decided to do away with this expense. Thus questioning the requirement of an expense can be a reality check.

E – Enhance
By incurring a particular spend, how is it enhancing the value of your business? What are the benefits the business obtains by incurring a particular spend? For instance the subsidiary of a foreign company, had an expatriate CEO who loved flowers. So each morning his office was filled with few exclusive flower arrangements. What started as an initiative to please that CEO was trickled to almost the entire office having beautiful flowers in their flower vases. This tradition continued even after the expatriate went back to his home country. While flowers are beautiful, was it adding value to the business? The successor CEO realised that the cumulative expense of these flower bouquets could rather be spent in paying better bonuses to the staff or some other worthwhile expense for the business and did way with the flower culture.

Thus by being watchful of your expenses especially during challenging times, you will be able to minimise the expenses of your business. All that is required is to pause and check on the above parameters and if you are fulfilled with it, you can proceed with the expense.

Excerpted with permission from Where’s the Moolah? Financial Growth Hacking for Business Profitability, Sangeeta Shankaran Sumesh, Westland Books.