Tag Archives: Business

It’s all about the money, honey

If you’re in business the chances are that you need to make money.

The aim of the game is to have something left after all the bills are paid whether that’s because you want something for yourself, to pay dividends to investors or, if you run a social enterprise, to do some good for the wider community.

Cash in business Quite often I hear the complaint “We’re not making any money” but what does this mean? There is no point in any business at which money is actually made!

In simple terms we think of “making money” as making profit – when sales income is more than all the appropriate costs.

What people actually mean when they say they are “making money” is that there is plenty money in the bank to pay the bills that come in. Making profit doesn’t always mean that there is money in the bank.

In business nowadays the chances are you buy on credit, and you offer credit to your customers and you buy more stock that you need straight away so that you always have something to sell. All these things separate when the money is received (or paid) from when the sale actually happens.

So making money is actually more to do with generating cash.

Cash is king for businessIn basic terms, a business which consistently makes losses will only be able to pay all of its bills if there is extra cash being provided from somewhere else. If my costs come to £5,000 but my sales are only £4,500 I won’t be able to pay all of my bills, there will need to be a bit of negotiation with suppliers or some savings to fall back on.

However making money isn’t simple even if the business is making profit.

It’s possible that I could be making profits and still not bringing in enough cash to pay all the bills when they are due.

Most obviously, if I buy stock for selling on in future I will likely need to pay my supplier for the stock before my customer has paid me, but if my customer hasn’t paid me how can I pay anyone else?

Accountants usually make some changes on paper to spread these sorts of costs over the year and match them to the sales that they relate to, but in cash terms my suppliers need the money more promptly to pass on to their suppliers.

What’s even more tricky is finding cash to invest in the business’ facilities. Buying a new delivery van has very little impact how much profit you make because only a small-ish part of the cost of the van relates to the sales in any given month, or year.

When it comes to paying for the van though, even with a hire purchase loan you’re going to need to pay a chunk of the cost as a deposit. That’s going to hit the bank balance.

So making money involves more than just selling for a profit. Cash may be king, but cashflow is complicated!

In my view the only way to tackle the cash challenges that every business faces is to plan ahead. Add to that a bit of action to make sure that:
– customers are paying,
– you’re not paying out for more stock than you need and
– you are making the best use of credit offered by suppliers
and you will be giving yourself the best chance to make money (and hold on to some of it) whatever stage your business is at.

Cash is kingThis is the first in a series of blogs looking at cash flow and ways to improve it, all filed under the “Cash is King” category.

Food & Drink Business Finance Workshop

I’ve not been writing much recently, but that’s not to say that I’ve not been busy!

I am hard at work in the background putting together a workshop to help ambitious food producers understand their finances and make sure that they are looking at the right information to make good decisions and grow their businesses.

Every business has some way of tracking their income and their spending. When you start out it’s easy to have a simple system that you understand, but as your business grows – especially if you’re ambitious and your idea finds hungry customers – it can be difficult to keep track of the finances.

Is there time for business growth? The accounts that are prepared at the end of the year show how much profit has been made during the year, but often that is only useful to HMRC so that you know how much tax to pay!

When it comes to growing your business you need to know how you make profit, in order to make sure any new sales add more profit! So you need to be able to compare different products, different customers or compare the profit that you’ve made with the effort you’ve put in to the business. Year end accounts usually don’t help much with this.

Add to that the fact that you probably don’t get these accounts until at least 3 months after the end of the year. If you spot an opportunity or a problem during the year you want to have information to react to it immediately, not wait 9 months and hope you did the right thing.

So you need good data, and in order for it to mean something you need to have a some history as well. In order to get the information you need to manage your business successfully you need to know what it is you’re trying to measure and develop a system (maybe just notes on paper, maybe more complicated) to record it.

The challenge is that the information required varies from business to business, it even varies at different stages of a business’ life and often isn’t immediately available from your accounting system.

Information is key to growing your businessIn the forthcoming workshop I have partnered with Mary Quicke of Quicke’s Traditional, an award winning cheese maker who has established a successful and trusted brand making traditional high quality cheese.

Mary has a wealth of experience gained from growing her business and will share the KPIs, financial information and some of the strategies that she used to grow her business.

The workshop will be held on 10th September from 9.30 until 13.30 at The Cedars Inn in Barnstaple. It is open to all ambitious food producers.

For the moment please contact me for more information: the registration page is under construction!