My Mother – Lily 1926-2017

Lily
Lily Plumley

My mother passed away on 5th December this year, aged 91. So I thought I would repost this article I wrote for her 90th birthday.

She loved and was loved.

 

Wednesday 16th March was my mother’s 90th birthday. Following on from last week’s blog I thought I’d write about her early life and changes. Ninety years would be too long to cover in one blog.

Mother’s family moved from the Marlborough area of the Wiltshire countryside, settling in Archway, North London in the 1890s. If grandmother had been born a few days earlier she would have been born in Wiltshire. The family seem to have found a more prosperous life in London. At age eight a census shows my great grandfather living in a workhouse with his widowed father and brother, but life had improved considerably.

My mother was the youngest of three, with an older brother and sister. She was born in the same house my Grandmother lived in as a child and her grandparents lived with them. The area must have been a lively community where mother and family were well know. My mother remembers a constant stream of people calling in on my grandmother. Great-grandmother was trained as a cook and meals followed a regular pattern of roast beef on Sunday, cold Monday, minced Tuesday through at least until Thursday. Once a year the family spent a week’s holiday in Southend-on-Sea where great grandmother always lost her hat from Southend pier.

At the beginning of WW2, aged 13, mother was evacuated, with her sister, to Luton. Luton was a strange choice, being one of the first areas bombed. She was not made welcome, they were homesick, underfed and she spent her time hanging around parks and places to avoid their new carer. Pretty soon my grandmother decided to fetch them back and both sisters then remained in London for the entire war.

Archway being on a hill, mother had a panoramic view of the devastation caused by the bombing in the Blitz and remembers seeing St Pauls Cathedral surrounded by fire.

Mother worked at the admiralty in the heart of London. I think the worst bombing, for her, occurred later in the war with the doodlebugs and then the V2 rockets. Doodlebugs could be heard and when the engine stopped that is when they fell. The next innovation, V2s, was silent, they effectively fell out of a clear sky.

It wasn’t all rationing and bombs she went dancing a lot and ate out regularly  (possibly courtesy of various boyfriends) as restaurant meals weren’t subject to the same meager rations as food. There were  few young British men around, she went out with a Canadian, which was respectable. Americans were too brash!

Although in a reserved occupation, mother’s brother Arthur joined the army and was sent to Burma, he was wounded but returned to duty. When VE day arrived mother’s family were mourning his recent death in Burma from sniper fire.

Rationing continued after the war, perhaps this was the reason mother caught TB. Although I understand that penicillin had been discovered it was not yet a treatment for TB. Treatment was complete rest, fresh air and exercise at a sanatorium somewhere in the country. Mother spent almost a year recovering but not all patients survived.

So that briefly a quick run-through of Lily Plumley’s first 21 years, it is history but it is also a snapshot of person’s life.

2016-03-15 17.16.17 (2)Happy 90th birthday Lily.

Financial expertise – how can it help your business?

jigsawOne of the things I learnt when I left corporate life and set up my own company was the value of other people’s expertise. Yes I could write copy, design a website or deal with IT problems myself but  that took me many times longer than a professional and the results were never half as good. So I also believe that while most growing businesses may ‘cope’ without financial expertise it’s quicker and more productive to employ a commercially experienced finance professional, either part-time or outsourced.

Just about everything you do in business impacts your finances, in turn your finances affect what you can do in your business. So really measuring and understanding your financial data can substantially improve your business.

An experienced financial expert can help you

  • Streamline
  • Save time
  • Save money
  • Improve cash flow
  • Plan more effectively
  • Spot and respond to opportunities
  • Spot and respond to risks

Not a definitive list!

Streamline and save time

You are required to keep accounts in a certain format for the purposes of:

  • Company law and accounts filing
  • Taxation authorities – corporation tax, VAT and employee taxes which all have slightly different requirements and reporting periods
  • Stakeholders such as banks who may want to see accounts monthly

Understanding these various information requirements means that data is collected in an easily accessible and analysable format thus reducing bookkeeping and administrative time. Time spent compiling information for statutory purposes can simultaneously provide measures that help you understand and control your business.

More detail

Management information

 

Save money

A well organised accounting system will save you money. Depending on the business there are numerous ways this can be achieved by ensuring:

  • You cover all costs when charging for products or services
  • You raise an invoice for all goods and services supplied
  • You hold the optimal stock levels to avoid damage and other stock losses
  • You are correctly charged for goods and services
  • You do not pay twice for goods or services or items you have not received
  • You obtain any discounts offered for early payment

More detail

Profit leaks

 

Improve cash flow

There are numerous ways to improve your cash flow:

  • Raising sales invoices on a timely basis
  • Tight credit control ensuring monies collected as due and reducing the risk of bad debts
  • Choosing the optimal timing and type of investment
  • Obtaining good credit rating and supplier credit terms

More detail

Cash flow – modelling

 

Effective planning

Good financial analysis and measures will give you better business information and lead to better decision making. You have an overview but do you know:

  • Which products or services produce the best profit
  • Which of your customers are most profitable? (Not necessarily the ones with most sales)
  • What your probable cash flow looks like for the next few months
  • How your business plans may affect your cash flow
  • Breakeven – i.e. at what level of sales you will cover all your costs and start to make a profit

Good informed measurement and analyses enable you to choose the best plan for your business. If you don’t fully understand how all your costs are structured it is unlikely that your business plan will produce the most profitable outcome.

What-if measures and analyses will help you assess the likely outcomes of plans by looking at the downside risks and upside gains.

More detail

Business strategy – sales

Business growth needs more than sales growth

Cash flow, profit and your growing business

 

Opportunities and risks

Financial information and/or advice needs to be relevant and timely to enable you to spot the opportunities (a very profitable product) or quickly adapt to threats (a sudden downturn in demand for certain products). Cash flow analyses can alert you to the need for an overdraft or other outside finance. Understanding the financial impacts of business activity can make the difference between business survival or prospering.

If you are running a successful business but find that your business figures do not help you direct your business then ask for more or different. Financial expertise can be offered under a number of titles, Finance Director, Accountant, Financial Controller, but commercial experience and business clarity are the main elements to look for.

I welcome any comments or questions.

 

Business Growth Needs More Than Sales Growth

 

Growing Things

I was recently speaking to a friend who is a business advisor. She commented that many business owners think that growing their business is solely about increasing sales. Of course a business can’t grow if it doesn’t have the customers but also a business can collapse if it fails to consider the resources it requires to support any sales growth.
There are basically two ways of growing sales; either organically by growing sales within the business or by merging with or buying another business. The issues are different if you are merging separate businesses so here I will concentrate on requirements for companies growing organically.

 

 Financial – Do you have enough cash?

Generally a business will have to pay for expenses such as stock or payroll before receiving sales revenue. Additional volume creates higher up-front costs. Because of these timing differences a business can be profitable but still run out of cash. Lack of the money to pay suppliers or staff can result in the collapse of a profitable business (see here for article).

 

 Information – do you know if your sales are profitable?

Sales growth may not result in profits growing correspondingly. You need to know that sales are profitable so as to cover all costs. Increased sales may be because your pricing has failed to account for all costs or there may be extra cost associated with the additional volume.

 

 Systems – do you have the systems in place to cope with increased volumes?

A system that has been sufficient to cope with hundreds of orders may not cope with thousands of orders. A number of systems are involved here, taking orders, processing, delivering, invoicing, and ensuring receipt and recording of payment.

 

Staffing – do you have enough and sufficiently trained staff to cope with any increase in volumes?

Poorly trained or overworked or stressed employees can lose you customers and damage your reputation. Staff errors could also cause your business to lose money. Ideally you should recruit ahead of any sales surge.

Summary

Growing a business requires a variety of expertise. If you have any queries I would be delighted to answer them on this post or contact me here.

Balance Sheet – care of your assets

BalancesSo far I have not written a post about your balance sheet. However a new calendar year is new financial year for many businesses and now might be a good time to take a look.

Your balance sheet is a snap shot of the value of your company at any particular time. Unlike the profit and loss account your balance sheet contains values accumulated since you began trading. As well as showing the trading assets and liabilities belonging to the company at any one time it  shows the profits kept within the company since trading started (accumulated profits) and also assets purchased and retained over the same periods.

But do you really know the detail of what the figures on the balance sheet represent?

As this is a vast subject I’ll begin with fixed assets. There are several  categories of fixed assets, in this article I’ll concentrate on the company’s trading assets which could include land, buildings, plant, equipment and office furniture.

Fixed Assets – cost

Some years ago I was involved with auditing a plc which had millions of pounds of assets on its balance sheet, some dating back over 30 years. They were unable to match balance sheet values to their asset register and we had a huge exercise to determine what assets the business possessed and the value for accounts purposes. If it could happen to a large plc, can it happen to you?

Accounting software is not suitable for recording fixed assets detail; this should be supplemented by a separate record usually known as a fixed asset register. Detail should include when and at what cost the entire asset item was purchased and where it is located. Asset register totals should match the totals in the accounts.To help identify, easily movable items should also have a discrete asset number.

Reasons it is important to have a detailed asset record:-
  • Safeguard the company’s assets
  • Insurance purposes
  • Tax requirements – many items will be eligible for tax allowances
  • Due diligence – if you decide to sell your business it will be necessary to confirm which assets are owned by the company and how the costs relate to the accounting values
  • Audit – if you are a small company you may not require an audit but once you exceed a certain size an audit will be required
  • Bank or other finance – a lender may require security over company assets.

 

Common errors I have encountered in the recording fixed assets:-
  • Failure to identify or record disposals
  • Not identifying additions or improvements to original assets. For example I have found unidentified bits  of machinery which are listed separately but are actually a part of an existing asset
  • Disposal value being deducted from asset cost; the original cost should be deducted from total cost so that the asset is no longer included in the accounts
  • Failure to identify (capitalise) an asset. Often if an asset is below a minimum value these will be not be capitalised, however sometimes small items purchased individually may be used to build a larger item. For examples lots of screws and individual components may be used to build an item of plant.

The above is a brief outline regarding accounting for fixed assets. Despite, or perhaps because recording physical assets may appear as common sense, it has been my experience that this is often an area where on closer investigation many problems surface.

I would be pleased if you let me know any comments or questions, either on the comment section, or by contacting me here.

Business Strategy – sales information

Sales figures are probably the most closely scrutinised of any business information. Timely reaction to any changing sales environment is essential in order to optimize sales and profits. Good analysis will lead to good strategy and I’ve listed below some of the points to consider.

Sales by product or service

  • Which product or service is most popular in this period?
    • Analyse reason for increase/ decreased sales,
      • Have you began or ceased a marketing campaign?
      • Has the economic, social or natural environment changed so as to be more/less conducive to such sales?
      • Is changed demand due to temporary circumstances or permanent?
      • Has your position relative to competitors altered e.g. cheaper, better quality?
      • Is one product or service complementary to the other e.g. mobile phone and phone case/ear phones?
      • Is one product replacing another e.g. notebook/laptops?
      • What are the reasons that sales mix now differs from your original prediction (forecast)? 

Strategy Options

Do you need to invest in a marketing campaign, allocate more resources to certain products or cease providing unpopular services? Or would a new or different offer revive sales?

Sales by customer  

  • Who are your best customers?
    • What products/services are your best customers buying?
    • Are they buying more or less than in previous periods?
    • Are your customers concentrated in one industry or geographical area?
    • Are you becoming too dependent upon one or a group of customers? 

Strategy Options

If a good customer hasn’t purchased a certain product recently maybe they need a nudge? Or possibly they are buying elsewhere and you need to know why this has happened. If you sell a lot to customers in one industry it might be worth contacting non-customers also in that industry. Too much dependence on one customer may also be a risk if you lose that one customer.

 

Sales by period

This information is best analysed over several years but within a period you may be able to divine patterns of expenditure.

  • What are the seasonal patterns of sales of different products/services over the year?
    • Are there specific months when you do or do not sell specific products?
    • Do your sales relate to specific promotional activity?
    • Do your sales vary with certain events eg national budgets, rain, Easter?
    • Do some product sales show unusual peaks and troughs? 

Strategy Options

If know you do not sell jumpers between June and September perhaps stock swimwear. Perhaps some sales are influenced by non-company publicity such as a public health campaign leading to more fruit sales. Alcohol or petrol sales often increase before budgets. Being aware means that you can be prepared for changes in demand and not miss that additional sale.

 

Of course sales revenue is very important but it is as important to ensure that all your sales are profitable. High sales could be the result of pricing so low that you are making a loss on a product. But that is a subject for another article.

Relevant measures will vary with the business. I’d be interested to know which particular sales measures you have found most useful.

Top 5 Tips of the Cost Reduction Trade

Guest post from Richard Gardiner of Lean Cost Management – cost reduction tips.

Cutting £20 note
Scissors cutting money

1. If you are purchasing or renting a new property make sure you lock in a utility (gas and electric) contract A.S.A.P. From the minute a new owner gets the keys to a property, the utility company, who has control of the meter, will be charging their highest tariff. Most utility companies will back date the new, lower rate which you have signed up for up to 3 months.

 

2. With waste collections keep the number of contract collections to a minimum. If you get busy or require more as a one off just call your waste collection company and they arrange for an additional collection. This will save you paying for empty bin collections.

 

3. Keep track of contract end dates and termination periods –Just because the contract end date is July per se doesn’t mean that you have until July to move it or cancel it. Some suppliers require 6 months notice to move or cancel a service.

 

4. You don’t get anything for loyalty these days, move suppliers at every opportunity, new business rates are ALWAYS better than renewal rates.

 

5. The termination letter is your best friend, 9 times out of 10 suppliers will find movement on their prices once you have issued it.

 

Richard is Managing Director of Lean Cost Management who are specialists in indirect, non-payroll cost reduction www.leancosts.com 

 

Management Information – what would you like to know?

Management information should be precisely that – information that is useful to help you manage your business. You will be familiar with the year-end accounts and possibly the monthly management reports coming from the standard accounts package. But these alone may not give you the information you require to manage and plan your business.Measuring money

In order to effectively manage the direction and profitability of your business these are some of the measures you could find useful:-

Profit & Loss account

Sales

  • How do your sales compare to expectations (forecast)
  • How do your sales compare to earlier periods
  • What are the sales values by product or service
  • What are the sales values by customer
  • What are the sales values by period
  • What are the  margins (gross profit) on all of the above
  • What are your most profitable products/services
  • Who are your most profitable customers

Costs

  • How does your expenditure compare to expectations (budget)
  • How does your expenditure compare to earlier periods
  • Which are your largest cost items
  • Who supplies these cost items
  • What are the payment terms of your suppliers
  • Why have you chosen these suppliers
  • What do the smaller expenditure items total and can these be decreased if significant

Staff costs

  • How do your staff costs relate to specific ‘cost centres’ or operating departments
  • How are your staff contributing to the business operations
  • What are your training costs and how to they contribute to your business aims

Costs Structure

  • Which costs are fixed and which vary directly with output
  • How do your costs relate to your different outputs

Balance sheet

Stocks

  • How do the stock values in your accounts relate to actual physical stock counted
  • Is there any spoiled, damaged or obsolete stock
  • Do you have efficient stock ordering/holding  periods and systems
  • How effective is your stock control

Debtors

  • What is the value of debtors and when due for payment
  • Have any of the debtors taken longer than the agreed credit period
  • How do these debtor values compare with previous periods

Creditors

  • What is the value of creditors outstanding and when are they due for payment
  • Are any due amounts apparently unpaid and for what reason
  • Is your business taking the agreed credit periods
  • Are there amounts due not included on your creditors ledger

Cash

  • Does the value in the accounts reconcile to the bank statement
  • Are there any unidentified receipts or payments
  • Are there any returned receipts or payments

Cash flow

  • Vital information – but covered in these articles here, here and here

The information you need will vary according to your business. Some measures will be easy to obtain. In fact, once you have the appropriate systems and reports most of this information is easy to gather and analyse on a timely and regular basis.

 

If you have any questions I’d be very pleased if you post on this site or contact me here.

Cash flow – modelling

In my previous articles I explained the importance of cash flow for both stable and growing businesses. I have been asked to provide more detail about the mechanics of analysing cash movements.

First a quick comment about forecasting… forecasts will always be wrong! This is very well explained on this website which covers forecasting strategy and requirements.

coins-background-high

Cash flow forecasts are more susceptible to error because they are an estimate based upon an estimate. That is, you first have to forecast (estimate) your future trading then estimate the periods for the resulting cash flows. For example, your terms of payment may be 30 days but some customers may take 40 days, or query a payment so that many of your cash receipts will occur later than your payment terms.

If the forecast will be wrong why bother?

In most cases any finance provider will expect to see a cash flow forecast; but if you are obtaining finance you need to have at least an idea of what levels and when finance might be required. In my experience it can be surprising how quickly a business can go from a large cash surplus to overdraft. Understanding how the elements of your business behave in cash terms is also a useful exercise.

Starting from the premise that you have a trading forecast and details of both revenue and capital costs, I’m listing below some timings to consider when constructing your forecast.

Sales Revenue

Timings of cash received will usually be different from the sales forecast which is based upon when a sale is made. So consider:-

  • Deposits
  • Payments in advance
  • Easy monthly payments
  • Retentions

You may have defined payment terms but realistically:-

  • Does (say) a major customer take a longer credit period?
  • How often do you experience slow payers or queries delaying payments?
  • What is your average rate of bad debts?

Purchases/costs

You should have more certainty about when you pay your costs but remember:-

  • Purchases are on whatever credit terms your supplier agrees.
  • Some annual costs may be shown in your accounts as incurred throughout the year although payable once a year; for example subscriptions or insurances.
  • Capital costs such as vehicles, equipment or furniture do not appear in your profit and loss account  but may be ‘one-off’ or lease payments over a period.
  • Depreciation does appear in your P&L account but is not a cash flow.

Salaries and wages

  • Wages and salaries are usually payable a week or month in arrears and net of income tax (PAYE) and national insurance.
  • PAYE and national insurance is payable in the following month but remember to add employers national insurance.
  • Cars and other benefits paid to employers attract an annual NIC charge.

VAT

There are many different VAT schemes, but assuming a VAT scheme used by the majority of businesses consider:-

  • On your sales you will receive VAT at 20% (UK) with the remittance from customer.
  • When you pay your customer you will pay VAT at 20% (UK) on most costs.
  • Each quarter you will then pay to HMRC the sales less cost VAT. However this is required to be calculated as due at the invoice date; so  VAT on your return will be payable/recoverable regardless of when is payment actually received/made. 

Other Taxes

  • If your company is profitable remember you will usually have company tax payments. These can be substantial.
  • If you import goods you may be required to pay duty when importing your goods.
  • Some payments made or received may have tax deducted at source. 

This might all sound quite complex, but once the costs/revenues and timings are modeled you can then quickly run various scenarios to assess what and when your company might have funding needs.

If you have any questions you can leave a comment below or my contact details are here. Find out about me here.

Blue sky thinking, measuring and managing

Close up on the Rocks with a Small Tree - Snow Canyon UtahI suspect that few business ventures are started without a large element of  optimism and passion rather than business analysis of market trends or obvious gaps in the market. However some people take ignoring the facts of business life to dangerous extremes.

I was recently at a business event when a business owner stated

“I’ve been trading for two years but I don’t know if I’ve made a profit. I’d rather not know.”

Well after I’d got back on my chair (eek – the taxman?) I realised that that statement was perhaps an extreme example of a phenomenon I’ve often experienced in business.

This woman’s business was her passion, her baby, and she didn’t want to be told it was not a success. She wanted to keep on going regardless.

This attitude is not confined to small start-up businesses. Anyone who has worked at a senior level in finance will recognise that sometimes business decisions are based on criteria other than business analysis and logic. Basically a decision is reached and then the search is on for facts and numbers to support that decision.

I am not suggesting that the numbers are everything. Many successful businesses are the result of an inspired idea. Remember, for example, Friends Reunited which was launched by a husband and wife team in 2000 and sold five years later for £120 million? At inception no amount of modelling would have predicted that level of success in so short a time frame.

However it’s important to look at numbers while realising that there is an element of (subjective) judgement in any numerical analysis. By all accounts the disastrous takeover of ABN- AMRO could have been averted had there been a proper inspection of the figures (due diligence) relating to that bank. Management of RBS were motivated by the desire to build an even bigger empire and chose to put that imperative above commercial caution.

Whatever the motive for a business strategy, in the long run, that business needs to make a profit. If revenues do not exceed costs then effectively the business is paying its customers.

All business carries risk. However plunging in blind or with false assumptions can only waste precious time and resources. Business needs to have the facts and figures in order to make informed choices. Those choices will always be a matter of judgement but ‘what is measured can be managed’. It is a better policy to measure what is actually happening and then to model possible future scenarios. The future is uncertain but informed risk is better than ignorance or basing decisions on biased analyses.

 

I’d be delighted if you have any comments or questions. To read about me click here. To contact me click here.

 

Profit Leaks – how businesses can lose money

Woman writing numbers on clear screenThere are many ways in which businesses ‘leak’ profits. These leaks are the little (unnoticed) holes in systems or processes that can lose you money. Plugging these leaks often requires little extra effort but can have a substantial effect on your bottom line.

Often a company will start out fairly watertight but as it grows, more people become involved in processes, it’s more complex and the leaks develop.

Let’s look at a few examples. Below are three case studies, my own experience in different types and sizes of company.

1.    Information deficit leaks – do you know which of your products and customers are the most profitable?

Profits may be lost or not optimized where a company does not have the information needed to assess the best business strategy.

A well run service company had not increased its turnover in a number of years. The owners knew what the sales were for each service area. What they didn’t know was how much each sale cost, that is, how profitable each area was.

Once I’d implemented a project to analyse those costs the owners could determine which (most profitable) services to expand. Over the next few years income and profits increased by 65%.

2.       Revenue leaks – is every sale invoiced?

A company manufacturing units for onward processing used a sophisticated computerised system which managed stock, production through to delivery and sales invoicing. Even the smallest stock items were bar coded and recorded as they were used. When finished the units were scanned out of the factory. On delivery to the (one main) customer the units were scanned again and a sales invoice automatically raised on the system.

All computerised – so nothing could go astray? You’ve probably spotted the flaw. Some units ‘missed’ scanning at the customer. No sales invoice was raised and of course no payment received.

Most people will have assumed that the system would be programmed to spot this occurrence. But it wasn’t and didn’t. I processed the data outside the system to spot the £500k of sales not invoiced!

3.     Cost leaks – does your company only pay for the goods and services it has received?

Most companies have a system for ensuring that payments are only made for goods or services properly authorised and delivered. However leakages will often occur with regard to the non-standard items.

In this case the problems occurred with the new fleet hire system. Car hire was often on a continuous basis. The hire company invoiced monthly (electronically). The expense type didn’t fit the existing system. So the fleet management department paid what was invoiced.

Twelve months later, when I established a system for checking that the charges were correct the company had overpaid for fleet hire by £176k.

Every business is different. So every business will have different areas where profit leaks. But, for all organisations, doing business creates assets, liabilities, costs and revenue flows. Capturing, safeguarding and analysing these flows is essential for a healthy business and healthy profits.

How might your business be ‘leaking’ profits? If you would like a complimentary review of your business please contact me here for further details.