Understanding Your Business Finances

Your company’s finances always have a significant part to play in bids. They are a major consideration in your commercial pricing for the contract you’re bidding for, but there are other economic and financial considerations you need to bear in mind.

Financial Considerations as a Bidder

As a bidder, you should be evaluating your accounts to make informed and considered decisions about the financial implications of the opportunity you are bidding for and your ability to deliver the contract profitably. You need to review the economic and financial standing questions within a bid so you can assess the evaluation criteria, such as credit rating, the strength of your balance sheet, the acid ratio and of course your profitability. This information will be used to assess if you are a well-run business. Key financial indicators for a well-run business include:

  • Balance sheet – Does it show you have positive working capital, that you have good stock numbers, demonstrate that cash is not tied up unnecessarily etc.?
  • Reporting – Buyers may want to ensure you are running good financial reporting, with quarterly updates, your records in good order and reassurance that the business owners have their finger on the pulse of the company
  • Forecasting – With the unusual circumstances most businesses have experienced over the last few years, buyers are looking for evidence of financial stability. Forecasts show you have an understanding of the market, you know the challenges and you have a plan to mitigate the risks. This is key, especially if you are a new business and don’t have the historic information to tick the finance boxes

What steps can businesses take to ensure that these indicators are not pointing in the wrong direction? This question opens up a wider need to look at your company accounts.

Your company financials

There are some very easy steps you can take to ensure your business financials are in good health. Ensure you have good credit control, pay creditors within the agreed credit terms, make it easy for your customers to pay, chase your debtors and obviously make a profit.

It is crucial for you to know your gross profit percentage, net profit percentage and breakeven points and monitor them closely so you can take action if things start to go in the wrong direction. Fast action when circumstances change can mean the difference between being successful or going out of business.

Cash is king, so ensure you have contingencies built into your cash flow and consider upfront payments, especially in circumstances where you need to pay certain costs upfront and negotiate with your suppliers for the best terms. It is also important not to tie cash up in work in progress to ensure you have it available.

You need to balance what you know is coming down the line and trying to pre-empt and plan for factors out with your control – Brexit, COVID-19, rising costs etc. Alongside this you need to have a clear idea where your growth is coming from – is it organic or through acquisition and merger and also where you are heading – are you looking to exit or sell the business?

All of this relies on knowing your figures and having a good accounting system in place.

Accounting options

Often small businesses are busy doing their day job and looking after the client accounts. You may find it hard to keep admin such as financial records up to date. 96% of businesses that fail do so because they don’t have proper visibility of their numbers, so ensuring you find the right accounting solution is vital.

  • Cloud-based accounting systems are useful, but are only as accurate as the figures you put in. If the correct information is not being input or kept updated, the reports are not going to give an accurate picture of the business
  • Many companies look to employ an in-house accountant but, especially for smaller businesses, you need to consider the overheads and costs associated with an employee
  • You may prefer to bring in an external accountant to keep things up to date, deliver timely reporting and ensure the figures are accurate. This gives you peace of mind and frees your employees to use their time more efficiently to work on your business rather than doing your accounts and invoicing
  • There is also an option to bring on an accountant at the board level. They are impartial and can offer an outside perspective, bringing in the experience of working with other businesses to challenge you, act as a sounding board or guide the development of your business strategy

To work out what kind of accounting support you need, consider your bid process. For many smaller businesses not handling a large volume of bids, it is more economical to bring in external bid help as required. As the business grows you can look to appoint a full-time finance director or even an accounts team as required.

If you decide to bring in external support you should identify any specific needs or speciality service that you may require and look for a firm that has the background and history to be able to deliver. The accountant should be certified and ideally you should seek recommendations from contacts or friends.

Based on a LinkedIn Live with Carrie Campbell, Partner at Thomson Cooper and Non-executive Finance Director of AM Bid