What are the keys to business financial management?

Grant Leboff: Obviously financial management in a business is important. From your point of view, in the early stages of a business, what are the core KPIs that the business leader should be thinking about?

Guy Rigby: KPIs are pretty difficult in the early stage, but I think the most important one is; don't run out of cash. I think 'cash flow management' is crucial in the early days and you have to understand cash flow. You have to understand things like, if you increase your sales to customers who take 60 days credit, it sounds great but you need to finance it. So there needs to be a sort of, understanding, of how cash flow / working capital, works. At the end of the day, you need to have some basic books of accounts, so you need to record your sales, your purchases, your expenses, your payroll, your VAT returns, all these things need dealing with, and there are some great systems who are doing that these days. But you need to make sure that that's covered. Ultimately, businesses don't fail because they don't make a profit, they fail because they run out of cash.

Grant Leboff: So it sounds to me that one of the things is, the key is to do that forecasting for cash flow, so you know what cash you are going to have in the business at any one time.

Guy Rigby: Absolutely, and it's not month to month, it's day to day. Because you can find that a business can be in a hole for twenty five thousand pounds on the 15th of the month and perfectly alright at the end of the month. So you really need to have a handle on it, if you're going to run the business in, what I call, a fully solvent position. Being able to pay your creditors as they fall due and allowing your customers the credit that you've agreed with them.

Grant Leboff: in terms of then, say cash flow is absolutely key.

Guy Rigby: Totally.

Grant Leboff: Let's say we've got the forecast and we know we're OK for cash. Where do we start looking for... in terms of profitability and managing to make sure the business is going to make some proper money.

Guy Rigby: OK. So in a scaled up business, I don't think profits are important. I think market share, audience, level of sales growth et cetera is what's important. So if I was ambitious, I'd be growing a business as fast as I could within my cash flow capabilities. My cash flow capabilities, maybe augmented by external capital or they might just be what I generate from my own business. Actually profit is right at the bottom of my pile unless I want to turn it into a lifestyle business. Once it's a lifestyle business, you stop - probably - being quite as innovative. You probably stop pushing quite hard because, actually, you're drawing out a very nice salary, during a very nice dividend, and you don't really need to push very hard. The danger there is, that someone's going to circle round you and steal your market. So if you are ambitious, you need to keep things going.

Grant Leboff: And so, as you're scaling up the business, I take your point; look at market share, look at increases in sales, because they are perhaps better indicators - as long as the cash flow is taken care of - that you're doing well. For you, when in the lifecycle of business - not even if it's a lifestyle business - does profit start to become key? Is it ever key?

Guy Rigby: Look at Amazon. I think it's a great example of a company that... I mean I think it might make a very small profit now, but in terms of its scale, profit is just not important. It is it is the world's biggest scaled up business and all they're trying to do is grab market share, opening new markets et cetera, et cetera. Massive ambition behind that. And of course, Jeff Bezos has got the confidence of the markets behind him to enable him to do that. So I think, ultimately, you have to be able to see... If Amazon stopped tomorrow, in terms of all its innovation and all its acquisitions, whatever it's doing. Guess what? It will make a profit. So you build and build and build. But actually if you turn that investment tap off, the chances are the profits are going to come through. And I think that's the test. As an accountant or a finance director, I'd be saying what would happen now in this business of selling you have a 25 million a year, if I just turn that tap off? What would what would flow through? If that's a loss then you're in real trouble.

There may be small changes to the spoken word in this transcript in order make it more readable.