Category Archives: Business Strategy

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.