Category Archives: Starting Out

My own Management Accounts

Just recently I have been working on my own Management Accounts.

At this point I have a confession to make – I spend much more time worrying about my clients’ businesses than my own. Just like a cobbler’s child (who never has serviceable footwear), my own Management Accounts are always the lowest priority. To be fair, I do have a much less complicated business than any of my clients but that’s no excuse.

However, I decided this year I should get myself organised well in advance of the final deadline in January and so I have completed my own business accounts.

Time to crunch the numbers...

Time to crunch the numbers…

My year started in April 2013. I had a really quiet start to the year, which was great timing because it made having time off over the summer quite easy to organise, but since September I have been working 4 days per week instead of 3 and I have been pretty busy.

I was surprised to see that my total revenue for last year was slightly higher than in the previous year. On closer inspection I can see that the reason I was surprised is that my “take home” profit was slightly lower than the previous year – in short I spent more on business expenses along the way. My revenue went up 6% but my expenses went up by 54%!Graph

I can explain this; in order to grow my business I am investing in it, but at the same time I need to control my costs in future. I don’t want my profit margin to drop again this year.

So I have taken a shot of my own advice. I’ve got my business plan (see earlier posts) so I know what I need to achieve this year and how I plan to achieve it.

Next I needed to set myself a quarterly allowance for how much I can spend. With my clients I look at monthly budgeting, but as my business is smaller quarterly is fine. This requires some work; things like travelling costs vary – more work typically results in more driving to see clients, but other costs like my CIMA registration and my insurance are fixed regardless of the amount of work I take on.

Travel expenses are going up

Travel expenses are going up!

Now that I have my budget written down I can see that if I hit my targets (and I will be working 5 days per week instead of 4) and control my costs I will be able to earn more even though my expenses are forecast to increase again. Controlling costs could be as simple as trying to spend as little as possible, but I don’t think that is a realistic option for a growing business – sometimes you need to invest in future possibilities.

From my budget I can also see roughly how much I need to set aside to pay my taxes, so I should be able to avoid any nasty surprises in the future.

I always think the biggest benefit of having a budget is that it allows one to see whether the early months’ trading is on target. If I set out thinking that everything will be rosy and can’t see if progress is good enough along the way I might be fooled into thinking things are great just because I’m busy.

With the benefit of a budget I can (and did) stop, look at the first quarter’s results and see if I’m on track or if I need to make some changes before its too late (FYI – things are OK, thanks for asking!).

I often find that when a business doesn’t make the profit that was expected the tendency is to blame a problem late in the year. However if you look at the figures in a little more detail it is usually clear that although there was a last Pound stackminute problem the poor results are due to consistently lower than expected margins throughout the year which left no room for manoeuvre.

With this in mind I am going to keep up to date with my own accounts throughout this year and fingers crossed I can keep to the plan.

Expect the Unexpected: Why I don’t work without a contract

In order to gain a licence to work as an independent Management Accountant I have to do a number of things – I have to have insurance, in case I make a mistake; I have to have a contract which is about 7 pages long, and I have to have a complaints procedure and an ethics procedure.

A house in North Devon which caught fire last month after being struck by lightning... proving that things like that really do happen in real life.

A house in North Devon which caught fire last month after being struck by lightning… proving that things like that really do happen in real life.

When I meet clients I have up until now felt rather embarrassed by the fact that there is so much focus on things going wrong. The complaints procedure seems a bit silly since I am the only person in my business – if you’re not happy there’s no one else to speak to!

However, I have recently been helping a client with a tricky problem which has made me see this in a different light.

Two years ago my client started working with another consultant. They agreed terms etc in an email conversation, but never prepared a written contract to be signed.

One of the terms agreed was that after 2 years the deal would be renegotiated. Now after 2 years have passed my client wants to end the working relationship because it hasn’t delivered the results either side had hoped for, but the consultant feels they are due payment for work on projects that have not yet finished. You can probably imagine the argument that has ensued.

If only there had been a contract at the outset – it wouldn’t have prevented the relationship ending, but it would have made clear instructions as to what each party needed to do (and pay) at the end. By agreeing it at the start, when both parties are friendly it would be more likely to ensure that there was a reasonable deal for both sides.

So this experience has pointed out to me exactly why I have such a detailed contract, even though if my contract is terminated I only get 30 days notice and nothing else.

The point is that I will hopefully be able to avoid having to express all the anger and upset that typically comes at the end of a relationship. In future I’ll be more proud of my contract!