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Financial Controls for your business
Episode 15229th January 2023 • I Hate Numbers • I Hate Numbers
00:00:00 00:10:12

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Gaining Financial Controls for your business can be difficult and often rather daunting. Moreover, having the right approach and finance controls in place is essential to keep ahead of any financial issues that may arise.

This week’s podcast looks at PAWAD.  This is a five-step approach on how to set up and use effective Financial Controls for your business. The benefits of having Financial Control are many,

  • Firstly, whether you are on track to reach your goals.
  • Secondly, you stay in control of your business.
  • Thirdly, Stress, anxiety and uncertainty is replaced by calm, clarity and focus
  • Fourthly, greater visibility about where your money is going.
  • Fifthly, what your money is being used for

Furthermore, a healthy bottom line!

What is PAWAD I hear you ask, great question, hear is a little taste,

  • P is for Plan
  • A is for Actual
  • W is for Why
  • A is for Action
  • D is for Do

Listen to find out more

Conclusion and good to know

Operating any kind of business without having effective and impactful Financial Controls for your Business leads to financial problems down the line.  I don’t want that for you. So, whether you’re just getting started with developing good practices or already have basic controls set up, listen to get more insight.

The I Hate Numbers podcast isn’t just about Financial Controls, financial storytelling, and financial performance though.  Other topics are covered, for example, cash flow management, budgeting, forecasting, tax, accounts, and more! Every episode provides actionable advice from me, Business Finance coach, accountant and educator who explains that stuff in an easy and no-nonsense way.

Are you a small business owner, social enterprise or organisation passionate about change? Managing your finances can be a lot of work, trust me.  Finally, there’s software that makes keeping track of your cash flow and financial planning easier: Numbers Know How.

It helps you stay organised so you can focus on what matters to you, the creative work and the impactful change. Take a step away from the chaos with fast setup & easy navigation – numbers just got real…for the better! Get organised & make sense of it all with Numbers Know How today!

Grab your FREE cashflow guide Make your own Future Cash Story Plan with Numbers Know How.  Get in touch with us to help make your life easier and stress-free. Contact us if you need help figuring out and sorting your numbers, creating your future financial story plans, your taxpayroll and other accounting and business matters.

Are you ready to have an easier and more rewarding relationship with your numbers?  My book, I Hate Numbers helps you get there.

This book will show you how to have a rewarding, productive relationship with numbers and your business.  Furthermore, my book will help with that battle between the ears, that all business owners experience.



This podcast uses the following third-party services for analysis:

Chartable - https://chartable.com/privacy

Transcripts

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Financial controls, more importantly, effective financial controls are an absolute must have for any business. It makes no difference whether your business is an acorn size business or a mighty oak. It doesn't make any difference whether you are a manufacturing business, you are a retailer, a service-based business, or not for profit.

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Whatever your business shape is, whatever your business size is, you need to have effective financial controls. In this podcast, I'm going to explain to you the five things you need to have to have an effective and powerful financial control system in your business. It's summarized by the wonderful mnemonic PAWAD.

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Think about a puppy, think about his paw. Add the letters ad, and you've got that five letter mnemonic. What does that stand for? Keep listening and I'll expand on what that mnemonic represents.

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You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers Podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

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Hi folks. My name is Mahmood. I'm a business finance coach, accountant, and tax advisor. Over 28 plus years, I've been helping hundreds and thousands of businesses make more money, improve their financial awareness, reduce the anxiety and stress they experience in their business, and have the business they so desire.

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And I want that for you. Let's crack on with the podcast. And before we dive deeper and actually expand on that wonderful little mnemonic I introduced at the beginning, PAWAD, let's establish first of all, the positive aspect of having financial controls or controls of any description. Controls are there primarily

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to make sure you reach your objectives, whatever objectives you've set yourself, whatever your Northern Star looks like, controls are there to make sure that you achieve them, you achieve them successfully with minimum stress, minimum anxiety, minimum bumps in the road, and minimum disasters. So I want you to embrace the idea of controls.

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Don't look at them as a straitjacket. Don't look at them as a restriction. Look at them as something positive that you need to do to monitor by in order to get your end stated objective. Let's crack on. Now, the P in PAWAD is plan. Numbers will float around your business money that you are spending on various activities, from marketing to freelancers, to paid staff, to buying in products, to research development.

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Money will come in from a variety of sources. Different products and services that you're selling, but it means nothing at all to your business to say, how are you doing unless you have a parameter, unless you've got a yard stick to measure against. So your plan is the central, it's the framework upon which all control systems rest. Your plan, your financial plan

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is a representation of your business journey, your business future, your business story plan if you want, translated into what it looks like with figures overlaid. Please check out the podcast notes for links to earlier episodes where I've talked about the beauty of a business story plan, financial story planning, and how you go about it.

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So first of all, we need that plan. That plan, represents in numbers, a reflection of the business journey you are undertaking to get to your Northern Star, to get your business objectives. That plan, ideally that you've produced, perhaps over a twelve month horizon, should be broken down into discreet milestones. That business financial plan should be broken down to what it looks like on a month by month basis.

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That is your expectation of what should be happening. Now notice the emphasis on the words should and expected because anything that is into the future, every time we look through the windscreen of our business, we don't necessarily know 100% what's gonna happen. So that's the first thing we need. We need what does the plan say?

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What does the plan look like? The next thing we need to make sure we got reality. So for example, if I've planned to achieve 120,000 pounds, worth of profit for the next 12 months, I would break that down into, say for example, at the end of the first month, I expect to generate a profit of 10,000 pounds. Nice and easy. I can do that in my head whilst speaking into the microphone.

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Now, as that first month has elapsed somewhere in my accounting systems, I've actually captured the actual activity, the money that I've spent, the invoices that I've generated, the cost that I've incurred, and I've then got what the actual figure looks. For the profit that's been achieved in that same month. And let's say for argument's sake, the profit I've achieved, the A, the actual is 8,000 pounds.

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I'm measuring that against my expectation, my 10,000 pounds expectation, and I see straight away there's a 2000 pound difference. Which brings us on to the W in PAWAD. Now, that 2000 pound variation or variance, if you wanna put on your technical accounting and finance hat on, is saying that the difference between the expectation, the plan, and the actual, the reality is 2000 pounds and that's 2000 pounds, and that's gonna be a negative outcome.

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So we typically put that in brackets or put it in red, and that shows us that we've not achieved the profit we were hoping to do in that first month. Now, this is not the time to get depressed. This is not the time to say this is the end. This is just the first month we're looking at, and it's the first footprint.

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Now that 2000 pound variation leads us neatly onto the W - the why. Having identified there's a variation and it should be done, whether it's positive or negative, we then go and investigate what's happening. And it could be that we haven't actually sold as much as we expected in that month. It could be we've had to reduce the prices to our customers.

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It could be we're spending more than we expected, or it could be as a result of selling more, our costs go up as a result. So we need to discover the why. What's going on? Why has that result occurred as 2000 pounds to our detriment? And again, it doesn't actually mean that, you know it's a disaster, doesn't mean that everything's going wrong.

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But I would rather have an indicator early on in my journey than right at the end when it's far too late to change anything. So the why, there could be positive reasons, there could be negative reasons, but we need to investigate and try and understand why. Now, as a footnote, if you've got information recorded when you're putting together your plan and you check back to your assumptions. And that's gonna be really quite insightful and helpful when you figure out the why.

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So we've got the planning, we've got the actual, we've got the why. Why are these results different to my expectations? The next thing is to decide what's the actions that we're gonna undertake? What's the activities we're gonna do to actually put it right? So if it is, we are paying too much compared to what we had promised intially,

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we go back and talk to our supplier. If it's because we're wasting more materials if we're manufacturing or we're a retailer, if it's because we're paying more for freelancers than we expected. If it's because wages have gone up, is it because we haven't put the prices up in line with what we are saying?

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Is it because the marketing we are investing hasn't quite generated the results? So what are we gonna do? We can have those discussions. We can put certain things right. Certain things, by the way, let's be realistic, will be beyond our control. So we're gonna focus on the things that we can change and then we can effect, and then we can control.

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And we're largely gonna not ignore, but not overstress on the things that we can't do much about. So if interest rates have gone up, if the suppliers have put all their prices up across the board and there's no wiggle room, then to a large extent, we have to still try and manage it the best we can, but as little we can do to actually affect it in the short term.

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Now lastly, and this is probably the most powerful thing to do of all, it's all very well analyzing. It's all very well understanding. It's all very well deciding what's going on and doing something about it, but we've actually gotta do something. Action. The D, do something. Take action, be decisive, move forward.

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Now, as a business owner, you will be doing things that aren't always comfortable. You'll be doing things that are gonna be quite joyous. There's a whole mixture of things that we do as business owners, but you need to do something if you just merely let it slide and ignore it, the situation won't deteriorate as a result.

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If you merely do nothing at all and the situation deteriorates, it's not something you're gonna be particularly proud of. So folks, there you have it. PAWAD. It should be noted that control is the active part of our business journey. It's the things that we do, the controls of the mechanisms and devices we have in place to help us achieve and make those decisions.

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Please do check out the show notes. There'll be some links there to previous podcast episodes. Dig through, go through the library. There's loads of material there, information there that's gonna be really useful for you. What did you think to the PAWAD mnemonic? What would you add and do you have controls in your business?

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I'd love to hear your comments. If you feel there's somebody out there who could benefit, I'd love it if you could share that with them. If there's something you wanna explore, you wanna further that conversation, then drop me a line. The contact details are in the show notes. But until next week, folks, happy PAWAD.

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We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you got some value. If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.

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