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Tag: Business Growth

How much should you budget to spend on marketing?

Posted on by Susie Kevern

How do you keep control of marketing spend in a growing business? How much should your business be spending on marketing? Is it an investment in the future or just a cost?

Marketing spend is a difficult sell to accountants – there is no way of guaranteeing that it will deliver sufficient sales to cover the cost nevermind grow the business in the long run. It’s easy to argue this is frivolous spending, especially if times are tight.

But without marketing/ branding/ advertising activity there is a serious chance that sales won’t be maintained at a profitable level (or grow to get there) jeopardising the work that everyone else is doing. So yes, marketing is a necessary business investment.

So in the real world how much budget do you allocate to marketing; 2%? 5%? 10%?! and what’s the best way to spend it?

First, I would hark back to earlier posts about creating a cost conscious culture: everyone in the business can have an impact so good communication is vital. Take time to explain the goals to the team and show how they can play their part.

When the main budget is being constructed it’s not uncommon for marketing to be “given” a set amount of budget each month, regardless of future plans. This reflects the fact that ongoing marketing is essential, but wouldn’t it be better to look at the marketing plan and work out a cost of that?

Working in isolation risks creating plans that promise great things, both in terms of the budgeted profit and new prospects, but then fails to deliver. Setting out on to achieve goals when you know you can’t afford the resources that are needed is going to result in missed targets and it is easy to see this as a bad plan rather than a missed opportunity.

So how do you budget for a successful marketing effort?

Obviously it depends on what you want to achieve; doubling sales is likely to be much more demanding that maintaining current sales. But also it depends on the customers you’re trying to reach and the platforms you’re planning to use, so really there is no right answer!

So back to collaboration between the teams at the planning stage:

Focus on quality rather than quantity. That’s about reaching the right customers, and looking at specific activity rather than straight sales increases. Working on multiple fronts at the same time can be costly (and exhausting!) and there will be specific timescales for different offerings (advertising Christmas party bookings in January?).

The other key factor is that success depends on what you measure. It is important to understand what good results for your business will look like, so identify a return on investment at the outset. That doesn’t have to be in money terms (sales gained vs cash spent), why not look at other measures (views, enquiries, recognition, footfall) instead? Once you’ve identified your measure, you need to collect data to measure it – to review and work out if the expected results are being delivered.

As I’ve said before a budget should be a living document; constantly under review. When you’ve got some data, you can check the results against what you expected, and if necessary change the plan.

At this point you can update your forecast with better information to make see the implications of the changes to both profit and cashflow. This allows you to understand what you’re spending, remember why, and keep control of marketing spend in your business.

Better business budgeting: making a more effective plan

Posted on by Susie Kevern

Did you work out a budget for this year, as per normal? Have you thrown it out yet?!

It’s easy not to bother at the moment; the last few years have shown how little certainty we really have when we try to plan ahead and the last 12 months have made it clear that that’s not changing anytime soon.

So why bother with a budget?

In my experience making your own predictions of how sales and costs are going to pan out during the year gives you the background to make order out of chaos. What is the coming year likely to look like? What needs to happen to do to keep all those plates spinning and what power do you have to influence it?

Budgets were first developed in the early 20th Century as a way of keeping financial control on a business. The thinking was that analysis enabled business managers to control spending. But is a budget an effective tool to limit spending or grow sales? I think we would all agree that the 21st Century view is that it NO.

First of all, there are three distinct ideas wrapped up in a budget; strategy analysis, target setting and resource allocation, and that’s where I’d say the theory starts to fall apart. You can’t balance the best case outcome and the worst case outcome in one document without reaching a hopeless compromise.

Strategy Analysis
It’s easy to think of a budget as a plan for the year, but actually it’s more of a description, in numbers, of what you expect your plan to deliver.

Life very rarely goes to plan, but understanding what the world will look like if your business strategy plays out allows you to check you’ve got the right strategy. Will your growth plans deliver the anticipated results? Can you declare the dividends that you are expecting to pay?

A budget allows you to check you’re heading in the right direction.

Target setting
Targets are usually about sales, but regardless of subject a target is always something you want to achieve (or will be a challenge).

If a budget is going to be reliable you’re going to want to keep your sales figures realistic. But how motivating is a sales target that is safe and achievable?

While right at the moment keeping up with last year’s sales may be a challenge in itself, a good sales team will always be aiming for bigger and better.

Yes, the figure used in a budget needs to be “expected” sales, but target setting should be handled separately. There is no real compromise between achievable and motivating.

Resource Allocation
Overhead costs often feature in a budget as a consequence: an uncontrollable add on (or actually a deduction) from sales: staffing costs £x, marketing costs are the same as last year, the insurance cost has increased so something else has to be reduced to keep the balance.

This is not financial control!

First of all there will be interdependencies – controlling cost may mean you haven’t got the capacity to fulfil new sales orders, etc. So the staffing budget needs to be detailed and reflect the strategy.

Marketing spend, and lots of the other costs need to be planned and matched to specific activities (drivers) rather than just using last year’s figure, or a plain percentage of sales. Marketing in particular is a topic for another post, but my message is that this is the time to stop and think about how the bills added up last year and choose what you want to do this year, not simply repeat ad infinitum.

So effective budgeting needs to balance these three competing features. There are other ways that your budget can become more effective though:

Communication
With all of this planning it is important that creating a budget is always a two way process. This is another flaw in the original theory of budgeting. It’s easy for finance to pick a number and run with it, but the people who are talking to suppliers are the ones with the real information. A successful budget involves integrating the plans and barriers for all departments and decision makers.

Challenge
One of the problems with budgeting like this is that sometimes the budget will show a loss on the bottom line, which can be difficult to accept.

The reality of growing a business is that you continually invest in growth so there may not always be a rosy profit available. It’s important not to distort the predictions simply to make the budget look more reassuring. It takes action to change the numbers, it won’t work the other way round. This is where a cashflow forecast is important; in the short term profit is less important than cash and if previous investments are paying off there may be scope to stomach a loss this year.

Review
It’s easy to create a budget at the beginning of the year and leave it at that. But the real power of a budget is to compare real life to what you expected would happen, and work out what action you need to take as a result.

In addition to this there are no rules about how regularly you should review/ update it. It is worth keeping it up to date. If you started last year with monthly sales of £40,000 and in March half your customers closed for several months a comparison between budget and actual sales would not have told you anything about the effectiveness of your subsequent actions.

I like to review budgets at least quarterly to make sure the information is up to date, but its not unheard of to review them several times in a quarter as the facts change.

Good information is the key to making good decisions. Cash is always my first priority, but a well thought out budget is the source of the information you need to make your cashflow forecast and keep your business going, and growing successfully.

Look out for more blogs here talking about how budgets can make your business more effective, and if you would like help reviewing your current budget then get in touch.

Making the most of cash

Posted on by Susie Kevern

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[et_pb_column type=”4_4″][et_pb_text admin_label=”Text”]Generally people only think about cashflow when there is a shortage of cash in the bank to pay the bills. But what happens if you find your business with surplus cash in the bank? For some businesses at present that is a very real possibility, either because the disruption from Covid has played to their advantage, or because they have made plans for a worse impact than they actually suffered.

So what can you do when your business seems to be cash rich?

Obviously the first thing to do is to make/ check your cashflow forecast. It is easy to feel cash rich now, but have substantial bills due for payment in the not to distant future (check out my advice on cashflow forecasting specifically for 2020 here.

As I have talked about before, cashflow pressure usually stems from changes in sales, and so recovery after lockdown (or successive lockdowns) will always present challenges.

The good news in the Chancellor’s “Winter Economy Plan” was that repayments on both the Coronavirus CBILS and Bounce Back loans can now by extended (with the lenders permission) to up to 10 years, and any VAT deferred from spring 2020 can be repaid over the fiscal year starting in April 2021 rather than being due in a one off payment. This should help ease some of the cashflow pressure on businesses who are battling with fluctuating sales.

How much cash do you need to have?
My first reaction to seeing a lot of cash in the bank is that cash is like fuel to power your business’ engine – without it amazing opportunities can’t get off the ground. So it’s worth having a reserve in case of emergencies. To carry on the fuel analogy, this is like having a spare petrol can in the back of your car – it may get you out of trouble in the future.

How much reserve you need depends on your attitude and your business – usually one or two months’ worth of fixed (unavoidable) costs is a good place to start.

Using that fuel
If you have surplus cash on hand at the moment it’s likely that it is earning a pitifully small sum of interest while its in the bank. So what can you do with it to make it work harder for you?

Whether your business has been positively or negatively affected by Covid, having cash in the bank allows you an opportunity to invest in making your business stronger. The disruption has challenged a lot of our old ideas about what needs to be done and how it should be done.

Whether that is adding a new sales channel, launching additional services or adopting new technology in your business there are chances to “future proof” yourself and this surplus cash may be the fuel that you need to kick start the effort.

Make sure that you reflect these plans in your cashflow forecast though, because growing sales usually sucks in more cash than you expect, and the worst outcome is to invest in a new opportunity and then find that you can’t fulfill all the promise because of cash shortages.

Restructure
If you don’t see a particular business development opportunity on the cards at present how about using the cash to restructure existing (older) loans? It is likely that the interest rate will be lower, and the terms (length of the loan) will probably be better so this presents a clear saving as well as help with the ongoing cash repayments.

There is an advantage from replacing a personally guaranteed business loan with a government guaranteed loan. Effectively it gets you off the hook if your business go bust in the future. However insolvency practitioners are already wise to this fact and are likely to investigate the timing and reasons for replacing one loan with another. But if you have a healthy bank balance at present this is unlikely to effect you…

Other ideas
Depending on your business plans and your attitude to risk, if you feel you really don’t need the loan money you can repay it at any time within the first 12 months and incur no fees or interest.

Action!
Above all else it is important to do something. It is easy to let the cash sit in the bank with no particular plans and see it slowly whittle away being used for nothing in particular. This is the worst of all cases: if you use a loan to fund it’s own repayments you still have to find cash to pay the interest at the end, so there is a significant cost to the business with no matching benefit.

So you need a plan. Look at your options; maybe there is more than one, maybe there is a whole wish list. Work out what you need to do, make a cashflow forecast, keep it updated and steer your business to success.

If you have a plan but you need some help working out what the financial implications are then message me here to talk it through.

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Case Study: Ecocleen South West

Posted on by Susie Kevern

I was introduced to Ecocleen South West and the owner Jim Humphrey by his accountant in 2018. The business was growing exponentially but there was not enough information available to track profitability and manage cashflow.

Initially quarterly bookkeeping (in Xero) had been sufficient, but the business had grown to a point where more frequent and detailed monitoring was required. In addition to this Jim needed to be able to compare the profitability of different activities to his initial estimates. Most importantly, although the accounts tracked the expenses incurred there was no forecast of the effects of future sales growth on cashflow.

My first priority was to understand what was happening to the profit and cash generated by the business. An initial review revealed that the business was generating healthy levels of profit and was growing on sound footings.

While sales and profit were growing the timing of payments was putting a strain on cashflow. Improving credit control efforts was a quick and easy way to improve this. A 3 year forecast showed the impact of further growth on cashflow and indicated the level of finance required to give the business the life blood required to take advantage of new opportunities.

Armed with this cashflow forecast Jim secured the funding he required to smooth the challenges during 2019 and the business continues to grow. Now that he has good information he can compare actual performance to forecast and be aware of his future liabilities. In addition to this we identified key actions to reduce the financial impact of this growth, for example how best to sequence new projects to spread the cashflow change.

You can read and download the case study here: Case Study: Managing Cashflow

Cashflow First Aid

Posted on by Susie Kevern

Previously I have talked about the importance of having a cashflow forecast, and how to get started creating one. Next in my series of posts about cashflow is my top tips for first aid for when that forecast is looking gloomy.

1. Good decisions need good data

You can’t run a business effectively without up to date information. In particular how much money is owed to/by each supplier and customer.

HMRC is always a key creditor to keep an eye on – the numbers are usually amongst the biggest payments that you need to make, which can lead to unwelcome surprises.

Just as important as up to date accounts is making sure your plan is up to date. Especially in the current climate the future picture can change rapidly so make sure you have confidence in your key predictions (sales, costs and associated taxes).

2. Monitor the vital signs

There is no replacement to monitoring cash everyday, plus most accounting software makes this easy to do. You do need to keep an eye on payments that have not yet cleared, so you know you can rely on the figures.

3. Assess the scale of the problem

In order to understand where cashflow problems arise you need to work out how much cash you need to take each month in order to sustain your spending; the “burn rate”.

This is different from breaking even on a profit perspective; notably it will include loan and finance payments and probably once a quarter VAT payments.

To find your burn rate add together all of your regular spending over a month (or whatever timescale you choose). Compare this to the cash you expect to receive from customers (factoring in VAT!) and the result will show you what you expect the change on your bank balance will be.

4. Quick wins

First things first; chasing any overdue customer debts can bring in cash straight away. This doesn’t have to be aggressive, but opening a dialogue makes sure that you stay at the forefront of your customers’ minds and increases the chances of you getting paid on time.

Get your invoices out promptly; as soon as the job’s finished or on an instalment basis if appropriate. This can make a big difference to the cash that’s coming in.

5. Review surplus assets

There are some assets that every business needs: whether that’s a delivery van, pcs, processing machinery or stock for selling on.

The problem is that this kit swallows up cash (even if you’ve had some credit before paying for it). Take a look at the stuff that you’ve got to hand and consider what it’s worth to you.

Could you raise cash selling off excess stock at a discount? Can you refinance bigger assets (eg vans) to release cash or reduce monthly payments?

This takes a little time and ingenuity, but may reap valuable rewards.

6. Prioritise

In the short term cash flow is more crucial than profit. With that in mind the first priority should be to tackle jobs that can be completed (and therefore invoiced) quickly. Bigger projects may generate more profit but the cash will take longer to appear in your bank!

Don’t go crazy and give away all your profit margin but it may be worth offering early settlement discounts to attract prompt payment to help with cashflow.

7. Reduce spending

Surely this is the most obvious way to impact cashflow, so why does it come at the end? Well, if your business is short of cash you’ve probably implemented some of this already; cancelling the “nice to haves” and limiting unnecessary spending.

Also, while some costs (often marketing) can seem entirely avoidable it is important to put that in context – the short term gain may come with a longer term cost, so it’s important to look at the true return you’d get on each saving.

If things are really bad you may be able to negotiate payment holidays with lenders or lengthen the repayment term which will reduce monthly outgoings, but look out for penalties and other charges that may negate the benefits.

This is only designed to be first aid for cashflow issues; treatment for long term ailments requires specific advice. Often the hardest part is to be objective and challenge fixed ideas. That’s the time to call in an independent professional.

Case Study: Cooper Golding Ltd

Posted on by Susie Kevern

I have been working with Cooper Golding since 2018, supporting owner Paula Golby manage her growing business as she moved form strength to strength as a result of her focus on high quality, tailored recruitment services.

With multiple customers and revenue streams business management was proving a challenge and reliable information was hard to find. With sales were set to treble Paula contacted me looking for better information to show how her rapidly growing business was performing and better systems to manage operations.

They use Xero as their accounting system, which allows them easy access and maintenance of their accounts information. However, like many businesses enjoying high sales growth they were constantly investing in additional personnel, marketing and equipment.

Paula needed clear and detailed analysis to ensure that the decisions she was taking delivered the cashflow and profitability she expected.

It was crucial that the solution should be easy to use and scale up. The most appropriate solution was to improve the information that Xero reported and to create a simple structure of spreadsheets to allow the in-depth analysis required by the team.

With reports that allowed Paula and her team to see how they were driving growth they grew the business beyond expectation for 2018 while maintaining their high levels of customer service. As we continue to work together we now have the information we need to be able to assess proposed changes to the business and make better, faster decisions for the future.

You can download the case study here: Case Study: Supporting Business Growth

Financing a growing business

Posted on by Susie Kevern

Yesterday I was lucky enough to be at the NatWestBoost event in Exeter with Wilfred Emmanuel-Jones of The Black Farmer. It was a fantastic morning full of inspiration and really good advice – but what struck me was Wilfred’s take on financing his business.

With an eye-catching brand and great proposition it is ripe for raising capital from investors or crowdfunding & he confessed that he had looked into it. But in his words: “the moment that you have outsiders in your business you have to listen to all sorts of other perspectives. Growing a business needs the tenacious drive of a passionate entrepreneur”

I speak to lots of ambitious food businesses who need more cashflow in order to grow. Some of the successful crowdfunding stories make it seem like a low risk, easy way to grow. However in practice it’s never as simple as the stories make out and you give away some of your control and potential rewards as well.

At the workshop on 25th March I am lucky enough to be joined by Toby Jones from Start Point Finance who advised Wilfred on raising capital to grow his business (Start Point Case Study). Toby will share his advice and experiences on the right way to raise money for growing businesses.