1. Introduction – Why We Invest in Everything Except the Finance Function.

Discover why a strong finance function for small businesses is a powerful competitive advantage. Learn how better financial insight, forecasting and decision-making can drive growth, profitability and long-term business success.

When business owners want to improve their business, they usually look in the same places. They invest in marketing to generate more leads. They recruit salespeople to win more customers. They upgrade their technology, improve their operations or spend money on customer service to increase loyalty. All of these are worthwhile investments because they have a visible impact on the business.

But there is one area that is almost always overlooked. Very few business owners ever sit down and say:

“We need a better finance function.”

In my experience, that’s because most people misunderstand what the finance function actually is. Mention finance and most business owners immediately think of bookkeeping, VAT returns, payroll, year-end accounts and tax returns. In other words, they think about compliance. Something that has to be done because the law says so.

As a result, finance is often viewed as a necessary cost rather than a strategic asset. It’s the department that keeps the taxman happy, not the department that helps the business grow.

I believe that’s one of the biggest missed opportunities in small business.

The businesses that consistently outperform their competitors aren’t always the ones with the best products, the biggest marketing budgets or the largest sales teams. More often than not, they’re the ones making better decisions. And better decisions rarely happen by accident.

Imagine two manufacturing businesses of a similar size. Both have experienced managers, loyal customers and a healthy order book. One owner decides whether to invest in a new machine based largely on instinct and the balance in the bank account. The other has accurate forecasts, understands the expected return on investment, knows the impact on cash flow and can model several different scenarios before making a commitment.

Both businesses buy the same machine.

One is gambling.

The other is making an informed commercial decision.

That’s the difference a strong finance function can make.

Over the years, I’ve worked with countless small businesses, and one pattern appears again and again. The businesses that make consistently good decisions nearly always have better financial information than their competitors. They know where they’re making money, where they’re losing it, what risks are emerging and what opportunities are worth pursuing.

The finance function isn’t there simply to record yesterday’s transactions.

It’s there to help shape tomorrow’s decisions.

That’s why I believe the finance function is one of the most overlooked sources of competitive advantage available to a small business. When it’s built properly, it doesn’t just tell you what happened last month; it helps you decide what to do next.

And in business, the quality of your decisions will ultimately determine the quality of your results.

2. The Biggest Misunderstanding About Finance.

One of the biggest misconceptions I come across is that accounting and finance are the same thing.

They’re not.

They’re closely related, but they serve two very different purposes.

Accounting is primarily concerned with recording what has already happened. It captures transactions, prepares financial statements, ensures compliance with tax legislation and provides an accurate record of the business’s financial performance.

All of that is important. Without reliable accounting information, you can’t build a successful business. But accounting is only the starting point. A finance function takes that information and turns it into better commercial decisions.

I often explain it like this:

Accounting asks: “What happened?”

A finance function asks: “What should we do next?”

It’s a simple distinction, but it completely changes how you view the role of finance within a business.

Imagine you’re driving a car.

Accounting tells you where you’ve been. It can show you the route you’ve already travelled, how much fuel you’ve used and how long the journey has taken.

A finance function helps you decide where to go next. It tells you whether you have enough fuel to reach your destination, whether there’s a quicker route available and whether it’s worth taking a different road altogether. 

• One looks backwards.
• The other looks forward.

Unfortunately, many small businesses never make that transition. Their monthly accounts arrive several weeks after the month has ended. They glance at the profit figure, check the bank balance and file the reports away until next month.

• Nothing changes.
• No decisions are made.
• The numbers simply become a historical record.

A genuine finance function should be influencing the conversations taking place around the management table every single week. Instead of simply reporting the numbers, it should be helping answer questions like:

• Should we increase our prices, or will the market resist?
• Can we genuinely afford to recruit another salesperson?
• Which products or services are generating the highest returns?
• Which ones are consuming time and resources without delivering sufficient profit?
• Are some customers actually costing us money rather than making it?
• How much cash are we likely to have available three months from now?
• Can we afford to invest in new equipment this year, or would waiting six months put us in a stronger position?

These aren’t accounting questions. They’re commercial questions. And they often determine whether a business grows, stagnates or struggles.

I remember working with a business owner who was convinced one of his largest customers was also one of his best. They placed regular orders, paid reasonably well and represented a significant proportion of the company’s turnover.

On the surface, everything looked positive.

But when we analysed the true profitability of each customer, taking into account discounts, delivery costs, additional administration and the amount of management time they consumed, the picture changed completely.

That “good” customer was producing one of the lowest profit margins in the entire business. Without that financial insight, the owner would have continued chasing more customers just like them.

Instead, he adjusted his pricing, changed the way the account was managed and focused future sales efforts on more profitable types of customers. That single decision improved profitability far more than simply winning additional sales.

That’s the real purpose of a finance function.

It’s not there to produce reports for the sake of reporting. It’s there to provide the insight that allows business owners to make better decisions with greater confidence. Because at the end of the day, businesses don’t succeed because they have the best accounts.

They succeed because they consistently make better decisions than their competitors.

3. Every Business Function Creates Value Differently

Every business has a number of different functions, and each one exists for a very specific reason.

• Marketing exists to create opportunities.
• Sales exists to convert those opportunities into customers.
• Operations exists to deliver on the promises that marketing and sales have made.
• Customer service exists to build loyalty, encourage repeat business and generate referrals.
• Human Resources exists to recruit, develop and retain talented people.

Each department plays an important role, and if any one of them performs poorly, the business suffers. But there is one function that influences every other part of the business, yet rarely receives the same level of attention.

The finance function.

In my view, the purpose of the finance function is remarkably simple. Its job is to improve the quality of the decisions being made throughout the business.

Think about almost every significant decision a business owner makes.

• Should we increase our prices?
• Should we recruit another employee?
• Should we move to larger premises?
• Should we invest in new machinery?
• Should we launch a new product?
• Should we stop working with a particular customer?
• Should we borrow money to fund expansion?

None of these are purely marketing decisions, sales decisions or operational decisions. They’re commercial decisions. And every one of them has a financial consequence. Without good financial information, those decisions are often based on instinct, optimism or experience. Sometimes that works. More often than we’d like to admit, it doesn’t.

A strong finance function doesn’t make the decision for you. It helps you make a better one. I often hear people say that success comes from making one big breakthrough. Finding the perfect product. Landing the major customer. Hiring the superstar salesperson.

Occasionally, that’s true, but in my experience, that’s rarely how successful businesses are built. Most successful businesses don’t transform overnight. They improve gradually through hundreds of better decisions made consistently over many years.

• One slightly better pricing decision.
• One better recruitment decision.
• One better investment decision.
• One better purchasing decision.
• One better decision about which customers to target.
• One better decision about when to hold back rather than push ahead.

Individually, none of these decisions seems particularly significant. Collectively, they change the entire direction of a business. Imagine improving just one decision every week. At the time, the impact might seem almost invisible. But after a year, you’ve made more than fifty better decisions than your competitors. After five years, you’ve made hundreds. That’s where competitive advantage begins to emerge.

It’s rarely one dramatic leap. It’s the accumulation of many small advantages that compound over time.

The same principle applies to personal investing. One extra percentage point of return may not seem impressive over a single year, but thanks to the power of compounding, that small improvement can produce dramatically different results over decades.

Business decisions work in exactly the same way. Each better decision creates another opportunity, avoids another mistake or protects another pound of profit. Those gains build on one another until the gap between two otherwise similar businesses becomes surprisingly large. This is why I believe the finance function deserves a seat at every strategic discussion.

Not because it’s there to report the numbers. But because it’s there to improve the quality of the decisions behind those numbers. Marketing may create opportunities. Sales may convert those opportunities. Operations may deliver the work.

But it’s the finance function that helps ensure every important decision moves the business in the right direction. And over time, that may be the greatest competitive advantage of all.

4. Why Small Businesses Underinvest in Finance

If the finance function can create such a significant competitive advantage, why do so many small businesses fail to invest in it?

In my experience, it comes down to perception. Most business owners don’t deliberately ignore finance. They simply don’t see it as something that can improve the performance of the business. Instead, they tend to hold one or more of the following beliefs.

“It’s just compliance.”

This is probably the most common misconception. Finance is seen as something that keeps the tax authorities happy. As long as the VAT returns are submitted, the payroll is processed and the annual accounts are filed on time, the finance function has done its job.

The problem is that compliance doesn’t make your business more competitive. It keeps you legal. They’re not the same thing.

Imagine if you viewed marketing in the same way.

• “We’ve updated the website this year.”
• “We’ve posted on social media.”
• “The marketing must be fine.”

Most business owners would recognise that simply completing marketing tasks doesn’t necessarily generate more customers. Yet many apply exactly the same logic to finance. Completing the compliance work becomes the objective, rather than using financial information to improve the business.

Another common response is:

“My accountant does all that.”

As an owner of an accounting firm myself, I completely understand why people say this. But it’s based on a misunderstanding of what most accountants are engaged to do. Traditionally, accountants are employed to prepare accounts, ensure compliance and advise on tax matters. They do an excellent job of helping businesses meet their statutory obligations.

What they don’t always do is act as the business’s finance function. Those are two very different roles.

Preparing a set of year-end accounts tells you how you performed over the previous twelve months. Helping you decide whether to recruit another employee next month, increase your prices or invest in new equipment requires a completely different type of conversation. One is historical reporting. The other is commercial decision-making.

I also hear business owners say:

“We’ll invest in finance when we’re bigger.”

Unfortunately, that’s a little like saying: “We’ll start navigating once we’ve reached our destination.”

The reality is that growing businesses need better financial information, not less. As turnover increases, decisions become more complex. 

• Cash flow becomes more difficult to manage.
• Margins become harder to monitor.
• Recruitment carries greater financial risk.
• Investment decisions become larger and more frequent.

The very period when many businesses postpone investing in their finance function is often the period when they need it most. Then there’s the business owner who says:

“I can see what’s happening from my bank account.”

I understand the temptation. It’s quick. It’s simple. And for a very small business, it often feels sufficient. But your bank balance only tells you one thing. How much cash happens to be sitting in the account today. 

• It doesn’t tell you whether you’re making money.
• It doesn’t tell you whether your margins are improving or deteriorating.
• It doesn’t tell you whether your biggest customer is actually your least profitable.
• It doesn’t tell you whether you’re building enough cash to pay the VAT bill next quarter.

And it certainly doesn’t tell you whether the decisions you’re making today are increasing or reducing the long-term value of your business.

Running a business from the bank balance is rather like driving a car by looking only at the fuel gauge. Knowing how much fuel you have is useful. But you also need to know your speed, engine temperature, tyre pressures and where you’re actually heading.

The same is true in business.

Perhaps the biggest reason small businesses underinvest in finance is that they classify it as an overhead.

• Marketing is seen as an investment because it generates customers.
• Sales is seen as an investment because it generates revenue.
• Technology is seen as an investment because it improves efficiency.

Finance, on the other hand, is often placed in the same category as insurance or utilities, something you have to pay for but would rather spend as little as possible. 

I think that’s a fundamental mistake. A strong finance function doesn’t simply cost money. It helps prevent expensive mistakes. It identifies profitable opportunities. It improves pricing decisions. It protects cash flow. It supports better investment decisions. And over time, those benefits almost always outweigh the cost of building the function in the first place.

The irony is that many businesses spend thousands of pounds trying to generate additional sales, while overlooking the one function that could help them make better decisions about every pound they already earn.

That’s why I don’t see the finance function as an overhead. I see it as one of the highest-return investments a business can make.

5. What a Real Finance Function Looks Like.

Not every business needs a Finance Director sitting in the boardroom. But every business does need a finance function. The mistake many owners make is assuming the two are the same thing.

They’re not.

A finance function isn’t defined by how many people work in it or how much it costs. It’s defined by the value it creates for the business. I tend to think of it as a journey through five distinct levels. As a business moves up each level, the finance function becomes less about processing information and more about improving decisions.

Level 1 – Bookkeeping

This is where every business starts. At this level, the focus is on recording transactions accurately. Sales are entered. Purchase invoices are processed. Bank accounts are reconciled. Payroll is completed. VAT returns are submitted.

This work is absolutely essential because every decision depends on having accurate financial information. But bookkeeping, on its own, doesn’t tell you whether you’re making good decisions. It simply records the decisions you’ve already made.

Imagine running a retail shop. Your bookkeeping tells you that you sold £50,000 worth of products last month. Useful? Absolutely. Enough to make better business decisions? Not even close. Bookkeeping provides the raw ingredients.

It doesn’t prepare the meal.

Level 2 – Management Accounts

This is where many businesses stop. Instead of simply recording transactions, the finance function starts reporting on business performance. Monthly management accounts might include:

• Profit and loss
• Balance sheet
• Cash position
• Gross profit margins
• Budget comparisons
• Key performance indicators

This is a significant step forward because it begins to answer the question:

“How are we performing?”

But there’s still a problem. Management accounts are often historical. By the time they’re produced, the month has finished. If profits fell six weeks ago, knowing about it today may already be too late to change the outcome. Imagine discovering that one of your projects lost £40,000. The management accounts tell you exactly what happened. Unfortunately, the project finished two months ago. 

The information is valuable. It just isn’t actionable.

Level 3 – Forecasting

This is where finance begins looking through the windscreen instead of the rear-view mirror. Rather than simply reporting the past, forecasting helps predict the future. Questions become very different. What will our cash position look like in three months? Can we afford another member of staff? What happens if sales increase by 20%? What if they fall by 15%? Can we fund the purchase of new machinery without putting pressure on cash flow?

Forecasting doesn’t predict the future with complete accuracy. No one can. Its purpose is to help you prepare for different outcomes before they happen. 

I worked with a business that believed it had a cash flow problem. When we built a rolling cash flow forecast, we discovered something surprising. The business didn’t have a cash problem. It had a timing problem. Large VAT payments and seasonal fluctuations were creating short-term pressure, but the underlying business was healthy.

By adjusting supplier payment terms and planning ahead, they eliminated a problem that had been causing stress for years. Nothing changed operationally. The forecast simply allowed them to see around the corner.

Level 4 – Commercial Decision Support

This is where I believe the finance function starts creating a genuine competitive advantage. Instead of asking: “What happened?”

The conversation changes to: “What should we do next?”

Finance becomes involved in commercial decisions throughout the business. Should we increase prices? Which products generate the highest profit? Which customers should we stop working with? Should we outsource production or bring it in-house? Will this investment generate an acceptable return?

Imagine two salespeople. One generates £1 million in sales. The other generates £800,000. Most businesses would assume the first salesperson is performing better. A strong finance function digs deeper. Perhaps the first salesperson wins low-margin work requiring constant discounts.

The second focuses on high-margin customers who buy repeatedly and pay on time. Suddenly, the £800,000 salesperson is creating significantly more profit. Without financial insight, management might reward the wrong behaviour. 

Commercial decision support helps ensure the business is making decisions based on data rather than assumptions.

Level 5 – Strategic Finance Partner

This is the level that very few small businesses ever reach. At this point, finance is no longer simply supporting the business. It’s helping shape its future.

The finance function becomes involved in strategic discussions before decisions are made rather than reporting on them afterwards.

• Questions become much broader.
• Should we acquire a competitor?
• Should we enter a new market?
• Is this the right time to expand?
• How will this decision affect the value of the business?
• What risks are emerging over the next three years?
• Which opportunities offer the greatest return?

Finance becomes an integral part of strategy. It’s not there to challenge every idea or slow progress. It’s there to ensure ambitious decisions are also commercially sound.

I often compare it to climbing a mountain. At the lower levels, you’re concentrating on each individual step. As you climb higher, your view becomes clearer. You can see further ahead. You can spot obstacles before you reach them. And you can choose a better route to your destination.

That’s exactly what happens as a finance function matures. The higher you move through these five levels, the greater the value it creates.

• At Level 1, it records information.
• At Level 2, it reports performance.
• At Level 3, it predicts what may happen.
• At Level 4, it improves commercial decisions.
• At Level 5, it helps shape the future of the business.

That’s why I believe the finance function shouldn’t be judged by how efficiently it produces accounts. It should be judged by one simple question:

Does it help the business make better decisions?

Because if it does, it’s no longer just part of the accounting process. It’s become one of the most valuable assets the business possesses.

6. Competitive Advantage Isn’t Always Visible.

When people talk about competitive advantage, they usually think about something obvious.

• A better product.
• Lower prices.
• Superior customer service.
• A stronger brand.
• A larger sales team.

All of these can certainly create an advantage, but some of the most powerful competitive advantages are almost invisible to customers. Let me give you an example.

Imagine two engineering companies operating in the same town. Both employ around fifty people. Both turn over £5 million a year. Both manufacture similar products. Both have experienced management teams. Both have loyal customers. From the outside, you would struggle to tell them apart.

Yet five years later, one business has doubled in size while the other is struggling with cash flow and declining profits.

What happened?

Many people would assume the successful business had developed a better product or found a more effective marketing strategy. But what if neither of those things had changed? What if the real difference was the quality of the decisions being made behind the scenes?

The first business is run largely on instinct. The owner has years of experience and trusts their judgement. Management accounts arrive every month, but they’re rarely used to drive decision-making. Most decisions are based on what feels right at the time.

The second business has invested in building a genuine finance function. Every week, management reviews a live dashboard showing the key performance indicators that matter most.

• They have accurate cash flow forecasts covering the months ahead.
• They know the profitability of each product line and each major customer.
• They regularly review pricing and monitor changes in margins.

Before making significant decisions, they model different scenarios to understand the potential financial impact. The two businesses don’t look very different. But they’re operating in completely different ways.

Now let’s introduce a few challenges. The price of steel suddenly increases by 15%.

The first business carries on pricing work exactly as it did before. Nobody notices the impact immediately because turnover remains healthy. By the time the quarterly figures reveal a significant reduction in profit, months have passed. Hundreds of quotations have already been accepted using outdated assumptions, and the lost margin can never be recovered.

The second business sees the impact almost immediately. Their pricing analysis highlights the erosion in gross margin, and management adjusts quotations before the problem becomes significant. Existing contracts are reviewed, purchasing strategies are reconsidered, and customers are informed of price increases where appropriate.

The same problem. Two completely different outcomes. Now imagine demand across the industry starts to slow.

The first business notices that the factory feels a little quieter than usual, but assumes things will pick up again. Several weeks later, sales have fallen, cash flow is becoming tight and difficult decisions have to be made quickly.

The second business has been monitoring its sales pipeline and forecasting workload for months. The slowdown doesn’t come as a surprise. Recruitment is paused, discretionary spending is reduced, and marketing activity is increased before cash flow becomes an issue.

Again, the difference isn’t luck. It’s preparation.

Finally, imagine that one of each company’s largest customers suddenly delays paying a £200,000 invoice. 

For the first business, it’s a crisis. Payroll is due next week. Suppliers need paying. The overdraft is already close to its limit. Panic sets in because nobody saw the problem coming.

For the second business, the delayed payment is certainly unwelcome, but it isn’t catastrophic. Cash flow forecasts had already identified the business’s exposure to that customer. Contingency plans were in place, financing options had been considered, and management had enough time to respond calmly rather than react emotionally.

The customer behaved in exactly the same way. The outcome was completely different.

What’s interesting about these examples is that neither business became better at manufacturing products.

• Neither hired better engineers.
• Neither invented revolutionary technology.
• Neither discovered a secret marketing strategy.

The products were the same. The people were the same. The market was the same. The difference was that one business consistently made better decisions because it had better information.

That’s what creates competitive advantage.

People often assume that successful businesses avoid problems. In reality, every business faces rising costs, changing markets, difficult customers and unexpected challenges. The winners aren’t the businesses that avoid those problems. They’re the businesses that identify them earlier, understand them better and respond faster than their competitors.

And that’s exactly what a strong finance function allows them to do. I’ve always believed that business success isn’t about predicting the future perfectly. It’s about being better prepared when the future arrives. That’s why I don’t see the finance function as an accounting department.

I see it as the business’s early warning system.

It shines a light on risks before they become crises, identifies opportunities before competitors recognise them and gives business owners the confidence to make decisions based on evidence rather than instinct.

In the end, neither of our engineering companies had a competitive advantage because they built a better product. One simply built a better decision-making process. And over time, that proved to be the more valuable advantage of all.

7. The Questions Every Finance Function Should Answer

If I asked a room full of business owners what they expected from their finance function, I’d probably hear answers like: 

• “It produces the monthly accounts.”
• “It manages the payroll.”
• “It looks after VAT.”
• “It keeps the records up to date.”

There’s nothing wrong with any of those answers. The problem is they’re all describing activities rather than outcomes. I don’t believe the purpose of a finance function is to produce reports. Its purpose is to answer the questions that help a business perform better.

That’s a very different way of looking at finance.

A set of management accounts, no matter how professionally prepared, doesn’t improve a business on its own. The value comes from the conversations those numbers create.

• Every report should lead to a question.
• Every question should lead to a better decision.

In my experience, the best finance functions are constantly helping management answer questions like these.

Where are we really making money?

This sounds like a simple question, but it’s often one of the hardest to answer. Many businesses assume their largest customers are also their most profitable. They’re often wrong. I’ve seen businesses discover that smaller customers, who order consistently, pay on time and require very little support, generate far more profit than larger customers who constantly negotiate on price, demand urgent deliveries and consume huge amounts of management time.

Turnover isn’t the same as profitability. A good finance function helps you understand the difference.

Which customers should we keep?

Every customer isn’t necessarily a good customer.

• Some pay late.
• Some constantly request discounts.
• Some create endless administration. 
• Some absorb disproportionate amounts of your team’s time.

If you only measure sales, every customer looks valuable. If you measure profit, the picture often changes dramatically. Sometimes the most profitable decision isn’t finding another customer. It’s improving or replacing the wrong ones.

Which products or services should we discontinue?

Business owners naturally become attached to products they’ve sold for years. But markets change. Costs change. Customer demand changes. A product that was highly profitable five years ago may now be contributing very little to the bottom line.

Without analysing profitability, businesses often continue investing time, stock and marketing resources into products that no longer justify their place in the portfolio. Sometimes the most profitable product decision is deciding to stop selling something.

What happens if sales fall by 10%?

Most businesses plan for growth. Very few plan for setbacks. A finance function should help answer questions before they become emergencies. If sales are reduced by 10%, what would happen?

• Would the business remain profitable?
• Would cash flow become a problem?
• Would costs need to be reduced?
• Would additional funding be required?

You hope these scenarios never happen. But if they do, it’s far better to have already thought through the response.

Can we afford to recruit?

This is one of the most common questions I hear. Usually, business owners look at the bank balance before making the decision. I think that’s far too simplistic. The better questions are:

• How quickly will the new employee become productive?
• What additional profit do they need to generate?
• What’s the impact on cash flow during the first six months?
• How sensitive is the decision if sales don’t increase as expected?

Recruitment decisions become much less risky when they’re supported by financial analysis rather than optimism.

Are our prices keeping pace with inflation?

Inflation rarely arrives as one dramatic event. It creeps into the business through wages, utilities, materials, transport costs and supplier price increases. Many businesses don’t notice the problem because sales remain strong. The warning signs only become obvious when profits begin to disappear.

A finance function should be monitoring margins continuously, highlighting where cost increases are quietly eroding profitability long before they become a major issue. Pricing should be a proactive conversation. Not a reactive one.

What’s the return on our marketing?

Marketing should never be judged simply by the number of enquiries it generates. The real question is: Which marketing activities generate profitable customers?

Suppose you’re spending £3,000 a month on digital advertising. How many enquiries become customers? What’s the average value of those customers? How long do they stay with the business? What’s their lifetime value?

Without financial analysis, marketing becomes an expense. With financial analysis, it becomes an investment that can be measured, improved and scaled.

Where is cash likely to become tight?

Cash flow problems rarely appear overnight. Most develop gradually.

• A large tax payment.
• A slow-paying customer.
• Seasonal fluctuations.
• An increase in stock levels.
• A new recruitment programme.

Individually, none of these is necessarily a problem. Together, they can create serious pressure. A finance function should identify those pressure points months in advance, giving the business time to respond rather than react.

What is increasing the value of the business?

This may be the most important question of all. Too many business owners focus entirely on this year’s profit. But buyers don’t purchase businesses based solely on last year’s profit. They buy future earnings, predictable cash flow, scalable systems and manageable risk. A finance function should therefore help answer questions such as:

• Are recurring revenues increasing?
• Are customer concentrations reducing?
• Are margins improving?
• Is cash generation becoming more predictable?
• Are we becoming less dependent on the owner?

Every one of these factors contributes to business value. Ultimately, that’s what finance should be helping to build. When you look at these questions, something becomes obvious. Very few of them are accounting questions. They’re commercial questions.

They’re the questions that determine whether a business grows, whether it remains profitable, whether it survives difficult periods and whether it ultimately becomes an attractive, valuable asset.

That’s why I believe we’ve misunderstood the purpose of the finance function for far too long.

• Its role isn’t simply to explain what happened.
• Its role is to help answer the questions that shape what happens next.

And the businesses that answer those questions better than their competitors are almost always the ones that outperform them in the long run.

8. Why AI Changes Everything.

For decades, the finance function has had one major problem. It has spent too much time looking backwards. Not because finance professionals wanted to, but because they had little choice. Before you can analyse anything, you first have to collect the information.

• Someone has to process the purchase invoices.
• Someone has to reconcile the bank.
• Someone has to chase missing paperwork.
• Someone has to enter journals.
• Someone has to prepare the reports.

By the time all of that work is finished, there isn’t always much time left to think about what the numbers actually mean. In many businesses, the finance team has become trapped in an endless cycle of administration.

• Collect the data.
• Enter the data.
• Reconcile the data.
• Produce the reports.
• Repeat next month.

The irony is that none of these activities, important though they are, actually improve the business. They simply create the information needed to begin improving the business. That’s why I believe Artificial Intelligence represents the biggest change to the finance function in decades.

Much of the work that traditionally consumed hours, or even days, can now be completed automatically.

• Invoices can be captured electronically.
• Transactions can be categorised intelligently.
• Bank reconciliations can be largely automated.
• Expenses can be processed without manual intervention.
• Reports can be generated in seconds rather than hours.
• Cash flow forecasts can update automatically as new information arrives.

This doesn’t eliminate the need for finance professionals. Far from it. It changes what they spend their time doing. For years, businesses have measured the efficiency of the finance department by asking questions like:

• How quickly can we close the month?
• How long does it take to produce the management accounts?
• How many invoices can be processed in a day?

Those questions are becoming less important. AI can increasingly handle much of that routine work faster, more accurately and with fewer errors than manual processes.

The real value now comes after the reports have been produced. Instead of spending hours creating information, finance professionals can spend their time interpreting it. That completely changes the role of the finance function.

Rather than asking, “What are the numbers?” they can begin asking, “What are the numbers telling us?”

• Instead of preparing spreadsheets, they’re identifying trends.
• Instead of entering transactions, they’re forecasting future performance.
• Instead of reconciling accounts, they’re spotting emerging risks.
• Instead of compiling reports, they’re supporting better commercial decisions.
• Imagine sitting down for your weekly management meeting.
• Instead of receiving a forty-page pack of financial reports that nobody has time to read, you receive something very different.

AI highlights that gross margins have fallen by 2% over the last six weeks. It identifies three customers whose profitability has declined significantly. It predicts that cash flow will become tight in eight weeks unless debtor collections improve. It notices that overtime costs have increased faster than sales. It models the impact of increasing prices by 4%, 6% or 8%. It highlights that one product line has become consistently less profitable over the last three months.

More importantly, it doesn’t just identify the issues. It suggests possible explanations and presents management with options. Suddenly, the finance meeting becomes less about reviewing history and more about deciding the future.

That’s a profound shift.

I often say that AI doesn’t replace judgement. It enhances it. AI can analyse thousands of transactions in seconds. It can identify patterns that no human would ever notice. It can test multiple scenarios almost instantly. But it can’t understand your customers the way you do.

• It can’t negotiate with suppliers.
• It can’t decide how much risk you’re prepared to take.
• It can’t balance commercial ambition with personal values.

Those decisions still belong to people. What AI does is give those people better information on which to base those decisions. Think of it like the sat-nav in your car. It can calculate the fastest route, identify traffic congestion and suggest alternatives. But it doesn’t decide where you’re trying to go.

That’s still your decision.

AI is becoming the sat-nav for the finance function. It processes vast amounts of information, highlights the most important issues and helps business owners choose the best route forward.

For small businesses, this is particularly exciting.

Historically, sophisticated financial analysis was something only large organisations could afford. They employed teams of management accountants, financial analysts and finance directors to provide strategic insight.

Today, AI is changing that.

Small businesses can now access forecasting, scenario planning, anomaly detection, profitability analysis and commercial insight that would have been unimaginable only a few years ago. In many ways, AI is levelling the playing field.

A small business with a modern, AI-enabled finance function can make decisions that are every bit as informed as those made by much larger competitors. And that is where the real opportunity lies.

The future finance function won’t be judged by how quickly it produces reports. It will be judged by how effectively it helps business owners make better decisions. Because reports don’t build better businesses. Better decisions do.

9. Building a Finance Function That Creates Competitive Advantage

By this point, you may be thinking: “This all sounds great, but I’m a small business. I can’t afford a finance department.”

The good news is that you don’t need one. Building a strong finance function isn’t about employing a team of accountants or creating another layer of management. It’s about making sure the right financial information reaches the right people at the right time, so they can make better decisions.

In fact, I’d argue that a well-designed finance function is one of the highest-return investments a small business can make because it improves almost every other part of the business.

So where should you start?

9.1. Produce Timely Management Information

The first step is ensuring that financial information arrives while it’s still useful. There’s very little value in discovering today that you had a problem two months ago. Management information should be timely enough to allow you to change direction before small problems become expensive ones. That doesn’t necessarily mean producing lengthy reports every week.

In many cases, a concise dashboard containing the key figures is far more valuable than fifty pages of accounts that nobody has time to read.

Ask yourself this simple question: “Can I still do something about the information I’m looking at?”

If the answer is no, the information has probably arrived too late.

9.2. Build a Rolling Cash Flow Forecast

Profit is important. Cash keeps businesses alive. I’ve worked with profitable businesses that ran out of cash. I’ve also worked with businesses experiencing temporary losses that remained financially strong because they managed cash exceptionally well.

That’s why every business should maintain a rolling cash flow forecast.

• Not just once a year.

Every month. Ideally, every week. A forecast allows you to see potential problems before they arrive. It gives you time to negotiate with suppliers, arrange finance, delay expenditure or accelerate debtor collections. Good cash flow management isn’t about reacting quickly.

It’s about seeing the problem early enough that you don’t need to react at all.

9.3. Measure What Really Matters

One of the biggest mistakes businesses make is measuring everything. The result is information overload. A better approach is to identify a small number of Key Performance Indicators that genuinely influence success.

Every business will have different KPIs, but they should always support better decision-making. For example:

• Gross profit percentage.
• Cash conversion.
• Average debtor days.
• Customer acquisition cost.
• Customer lifetime value.
• Sales pipeline value.
• Capacity utilisation.
• Revenue per employee.

Notice that these aren’t just accounting numbers. They’re commercial indicators. They’re telling you how the business is performing, not simply what it has sold.

9.4. Understand Job and Customer Profitability

One of the quickest ways to improve profitability is understanding where profit actually comes from. Not where turnover comes from.

Profit.

Many businesses know exactly how much each customer spends. Far fewer know how much each customer contributes to profit. The same applies to individual jobs or projects. 

Imagine completing two contracts worth £100,000 each. One produces a £30,000 gross profit. The other produces £5,000 after additional labour, delays, rework and customer changes. From a sales perspective, they’re identical. From a commercial perspective, they’re completely different. The businesses that understand this make better decisions about pricing, customer selection and future work.

9.5. Analyse Your Pricing Regularly

Pricing isn’t something you review once a year. It should be monitored continuously.

• Costs change.
• Markets change.
• Competitors change.
• Customer expectations change.

Your pricing strategy needs to evolve with them. A good finance function continually asks:

• Are margins improving?
• Where are discounts becoming excessive?
• Which products are underpriced?
• Which services deliver the highest returns?
• Are costs increasing faster than prices?

Pricing isn’t just a marketing decision. It’s one of the most powerful financial decisions a business will ever make.

9.6. Use Scenario Planning

One thing I’ve learnt over the years is that very few businesses fail because something unexpected happened. They fail because they weren’t prepared when it happened. Scenario planning is simply asking:

“What if?”

• What if sales fall by 15%?
• What if we lose our largest customer?
• What if wages increase by another 8%?
• What if we recruit three more people?
• What if we acquire a competitor?

Thinking through these possibilities doesn’t make you pessimistic. It makes you prepared. And prepared businesses tend to respond much faster than surprised ones.

9.7. Hold Regular Commercial Review Meetings

Finally, make finance part of your management conversations. Too many businesses review financial information once a month, approve the figures and move on. Instead, use the numbers to drive discussion.

• Ask questions.
• Challenge assumptions.
• Explore opportunities.
• Look for trends.

Every meeting should end with actions, not simply observations. For example:

• Why has gross margin fallen this month?
• Which customers deserve more attention?
• Which products should we promote more aggressively?
• Are we investing enough in growth?
• What’s the biggest financial risk over the next quarter?

When finance becomes part of every commercial conversation, better decisions naturally follow. The important point is this.

A finance function isn’t defined by the number of people in the department. It’s defined by the quality of the decisions it helps the business make.

Some of the best finance functions I’ve seen have consisted of a business owner, an outsourced finance partner and modern technology working together. 

Some of the least effective have been large finance departments producing endless reports that nobody ever acted upon.

The objective isn’t to build a bigger finance department. It’s to build a smarter one. One that delivers the right information to the right people, at exactly the right time. Because information, on its own, has very little value.

It’s what you do with it that creates competitive advantage.

And that’s ultimately what a great finance function is designed to achieve.

10. Final Word – Stop Looking in the Rear-View Mirror

Throughout this article, I’ve tried to challenge one of the biggest misconceptions in business. That the finance function exists simply to keep the books up to date.

It doesn’t. Or at least, it shouldn’t.

• Yes, bookkeeping matters.
• Yes, management accounts matter.
• Yes, compliance matters.

But none of those things, on their own, create competitive advantage. Competitive advantage comes from making better decisions than your competitors. When I look at where business owners spend their time and money, I notice a familiar pattern.

• They invest heavily in marketing to generate more leads.
• They develop better sales processes to convert more opportunities.
• They improve their operations to deliver a better customer experience.
• They invest in technology to become more efficient.

All of those investments are worthwhile. But very few spend the same amount of time improving the quality of the decisions they make every single day. And yet every important decision in a business has a financial consequence.

• Every pricing decision affects profit.
• Every recruitment decision affects cash flow.
• Every investment decision affects risk.
• Every customer decision affects long-term value.
• Every strategic decision ultimately appears somewhere in the financial results.

That’s why I believe the finance function sits at the centre of every successful business. Not because it controls the money. Because it improves the decisions surrounding the money. I’ve often said that running a business is a bit like driving a car. If you’re constantly looking in the rear-view mirror, you’ll eventually hit something.

Unfortunately, that’s exactly how many businesses operate.

They spend most of their time analysing last month’s figures, last quarter’s sales or last year’s profit. By the time the numbers arrive, there’s very little they can do to change them. The businesses that move ahead don’t ignore history. They simply spend more time looking through the windscreen.

• They’re forecasting.
• Planning.
• Testing scenarios.
• Monitoring trends.
• Identifying risks.
• Looking for opportunities.

They’re using financial information to influence the future rather than simply explain the past. As Artificial Intelligence continues to automate much of the traditional accounting work, I believe this distinction will become even more important.

The businesses that thrive won’t necessarily be those with the fastest bookkeeping systems or the slickest reporting software. They’ll be the ones who use that information to make smarter commercial decisions.

• Technology will produce the numbers.
• People will create the advantage.

That’s why I believe we’re entering a new era for the finance function. Its value will no longer be measured by how efficiently it processes transactions. It will be measured by how effectively it helps businesses grow, improve profitability, manage risk and increase long-term value.

• Marketing wins customers.
• Sales convert opportunities.
• Operations delivers the work.
• Customer service builds loyalty.

But it’s your finance function that helps you make better decisions every single day. And those decisions have a habit of compounding over time.

• One better pricing decision.
• One better recruitment decision.
• One better investment decision.
• One better customer decision.

Individually, they may seem insignificant. Collectively, they determine whether a business merely survives or consistently outperforms its competitors. Because in the end, the businesses that pull ahead aren’t always the ones with the best products, the largest marketing budgets or the biggest sales teams.

More often than not, they’re simply the businesses making better decisions. And behind those decisions is a finance function that does far more than count the numbers.

It helps build a better business.