Category Archives: Business value

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.

 

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.