Does your business turn accounting into financial control?

Recording what has happened is essential. Anticipating what may happen makes decision-making possible.

A business can keep its accounts up to date, file its taxes correctly and submit its annual accounts, yet still not know how much money it will have available in thirteen weeks.

It may also not know which customers generate a margin, how much cash its growth consumes or what would happen if customer payments were delayed.

This does not mean that the accounting is wrong. It means the next level is missing: turning reliable data into forecasts, alerts and decisions.

After more than 30 years working with businesses, I have found that this difference often becomes visible when an organisation grows, becomes more complex or experiences its first cash flow pressures.

Three complementary functions

Accounting, financial control and financial management do not compete with each other. They answer different questions and need one another.

Accounting records, organises and explains what has happened. It shows sales, expenses, assets, debts and the result for a period. It also underpins the company's corporate, tax and reporting obligations.

In Spain, this function is not just useful: the Commercial Code requires orderly accounting and annual accounts that give a true and fair view. For companies covered by Spain's Capital Companies Act, that Act also sets deadlines for preparing and filing the accounts.

Financial control compares, forecasts and identifies variances. It links accounting information with receipts, payments, margins, stock, debt and other operating data to understand what is changing.

Financial management interprets that information, presents alternatives and supports the decision. It is not limited to producing reports: it should help decide what to do, in what order of priority and with what expected impact on cash, profitability and risk.

That is why rigorous accounting is essential, but does not on its own guarantee financial control. Information must arrive in time, look ahead and connect with actual business decisions.

A simplified example

Imagine a business closing the quarter with sales of €300,000 and an accounting profit of €30,000. At first sight, performance looks positive.

However, most customers pay in 90 days, while the business pays suppliers in 30. At the same time, it has increased stock to fulfil new orders and must meet wages, taxes and a loan instalment before receiving payment for much of its sales.

The accounts correctly reflect the profit. But a cash flow forecast shows a possible cash shortfall of €70,000 in six weeks.

There is no contradiction. Profit and liquidity measure related but different realities. A business may be profitable yet lack the cash needed to meet its commitments on time.

The accounts are not wrong: there is a profit. Neither is the forecast: liquidity will be insufficient. Management needs both perspectives to act before the situation becomes urgent.

Five questions that reveal whether financial control exists

A business starts turning its accounting into a management tool when it can answer questions such as these with sufficient accuracy:

1. What cash position do we forecast over the next thirteen weeks?
2. Which customers, products, services or projects actually generate a margin?
3. Why are actual results diverging from the budget?
4. How much money is tied up in receivables, stock and operations?
5. What impact will an investment, a new hire or a growth target have on cash and debt?

If these answers are unavailable, late or reliant on improvised calculations, a lack of data is usually not the problem. What is usually missing is a system that turns data into useful information for decisions.

A minimum financial control system

For many SMEs, an initial level of control can be built with five elements implemented well:

• A reliable and timely monthly accounting close. Reviewing figures once a year does not allow the business to be managed or variances to be corrected in time.
• A cash flow forecast. It should show receipts, payments, due dates and the projected balance. Under pressure, a thirteen-week forecast provides a sufficiently practical planning horizon.
• A budget and variance review. The aim is not to predict exactly, but to understand what has changed, why and what decision is needed.
• Analysis of margins and working capital. It is useful to know where profitability is generated and how much cash is tied up in receivables, stock and operations.
• A concise dashboard. A few relevant indicators: sales, margin, cash, debt, receipts, stock and the business's own operating variables.

Frequency should reflect risk. A monthly review may be enough in a stable business. Under liquidity pressure, cash may need weekly or even daily monitoring.

When to strengthen the finance function

The need often increases when turnover, headcount or transaction volumes grow; cash flow pressures become frequent; profitability by activity is unclear; an investment is being planned; customer concentration is high; or management receives data late and does not fully trust it.

The solution does not always require a large finance department. It may involve improving processes and tools, defining internal responsibilities, hiring a management controller or using outsourced financial management.

The latter is particularly useful for businesses with turnover of between €1 million and €10 million whose complexity already requires senior financial judgement, but whose structure does not yet justify a full-time finance director.

Information should arrive before the problem

Figures should not arrive only to close the month, file taxes or explain what has already happened.

They should arrive in time to change a forecast, correct a margin, renegotiate a due date or reconsider an investment.

Accounting provides the foundation. Financial control makes anticipation possible. And financial management turns that information into decisions.

In your business, do the figures arrive to record what happened, or also to make decisions in time?