Many business owners are shocked to find their bank balance doesn’t match their profit and loss (P&L) statement. In this interview, Chris Worden speaks with Harry Lewington, a finance expert helping founders worldwide, to uncover why cash is reality and profit is just a theory.
- P&L statements can be misleading—cash flow is what matters.
- Fractional finance functions offer flexible support for all business sizes.
- Regular management accounts are essential for financial clarity.
- Growth must be balanced with financial stability and reserves.
- Hiring A-players and delegating is key to scaling safely.
Why Your P&L Doesn’t Tell the Whole Story
It’s common to see a healthy profit on paper, but still feel cash-strapped. Loans, director’s loan accounts, and untracked expenses can erode cash without appearing clearly on your P&L. Chris Worden highlights how many directors only realise this when facing insolvency.
The Importance of Cash Flow Management
Harry Lewington stresses that cash flow is the real indicator of business health. Monitoring both P&L and cash flow together allows for better planning and avoids nasty surprises when it’s time to invest or expand.
Fractional Finance: Flexible Support for Growth
Fractional finance functions let businesses access bookkeeping, accounting, and CFO-level expertise without the commitment of full-time hires. Services can be tailored to your needs, whether you’re a one-person startup or a multi-million pound company.
Typical Investment Levels
- Bookkeeper: £30,000–£40,000/year (pro-rata for fractional)
- Accountant: £60,000–£85,000/year (fractional)
- CFO: £90,000+/year (fractional, scalable to your needs)
Growth vs Stability: Striking the Right Balance
Rapid growth can be dangerous without financial controls. Harry recommends aiming for 20% annual growth and doubling net profit, but always keeping at least six months’ operating costs in reserve.
Building a Strong Team
Delegation is vital. Founders should focus on their strengths and bring in A-players for other roles. Use scorecards to identify top talent and don’t hesitate to let go of underperformers.
Common Founder Mistakes
- Ignoring systems and processes
- Trying to do everything themselves
- Not following up on financial details
How to Get Your Finances on Track
- Reach out to a finance professional for advice.
- Start using an accounting package like Xero or QuickBooks.
- Reconcile your accounts and review your financials regularly.
Key Takeaways
- Cash flow is more important than profit on paper.
- Fractional finance support offers flexibility and expertise.
- Regular, up-to-date management accounts are essential.
- Keep at least six months’ reserves for stability.
- Delegate and hire A-players to scale effectively.
FAQs
- Why doesn’t my profit match my bank balance?
- Profit doesn’t account for loans, debts, or untracked expenses. Cash flow shows your real financial position.
- What is a fractional finance function?
- It’s flexible financial support—bookkeeping, accounting, or CFO services—without hiring full-time staff.
- How often should I update my management accounts?
- Monthly updates are recommended for accurate, timely decision-making.
- How much should I keep in reserve?
- Six months’ operating costs is a sensible buffer for most businesses.
- What’s the first step if I feel overwhelmed by my finances?
- Contact a finance professional or start by reconciling your accounts and using accounting software.
For tailored financial advice or to explore fractional finance support, contact us today.
