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Tag: Business Information

Creating a Cost Conscious Culture

Posted on by Susie Kevern

What’s the most effective way of controlling spending in your business? Previously I have talked about whether or not a budget is an effective tool to control spending and concluded that it’s not. A budget is a tool for building an overview of strategy and assessing potential changes, not for controlling behaviour.

I had originally been planning to post about Zero Based Budgeting. This is a planning process where every cost has to be examined and justified before being allowed into the budget. But personally I find this time consuming and really not that rewarding so it’s difficult to get enthusiastic about it!

So instead I’ve been thinking about how it’s stupid to hope that you can control spending behaviour with a policy. Take lockdown rules as an example: the Government could have just set out the rules and hoped that the population would obey, and probably had minimal success. Instead they have relentlessly evangelised about the why behind their policy – to include all of the potential “decision makers” in their vision.

In any business the same needs to happen to successfully achieve the objectives, whether they be brand building or cost cutting. So how might you go ahead making this happen?

You need to involve the whole team, whether they have spending power or not, to build a “cost conscious” culture.

Ultimately you could say this starts with hiring the right people who understand the responsibility of spending wisely, but in the shorter term what about setting out a framework for decision making:

  • Is this spend really necessary?
  • Does it provide good value for money, especially compared to a cheaper alternative?
  • Does this create value? That’s in terms of something the customer values, not just something we like!
  • Does this achieve the goals we are working towards? So a higher cost could be an acceptable trade off for recyclable supplies, reduced carbon emissions, etc.

Communicating this allows the whole team to play their part in making spending effective, which really helps people stay motivated in uncertain times.

Similarly, communicating with the team how the business makes profit and/ or generates cash enables everyone to focus on directing efforts to make more.

That could be focussing sales & marketing efforts on the right activities that deliver good quality leads. Or focussing on sales that bring in better profit margins.

But equally it could be focusing on selling to customers who pay on time. Or structuring deals so that the business is not paying for supplies now that customers will not pay for for several more months.

While spending can’t be controlled by capturing a number on paper in a budget, this highlights the importance of having good information about your business.

Knowing how profit margins compare between products and customers, how long customers actually take to pay and having a picture of the current financial performance allows you to assess the effects of changes.

You can’t always make the right decision because you can’t be certain about the future but you can make better decisions.

If you feel you need better financial information to help your business grow successfully then contact me for a free, confidential chat, or have a look at other advice I’ve published about making your budget more effective.

Budgeting for real life

Posted on by Susie Kevern

Budgeting for real life is a never ending challenge: most likely you’ll be wrong, the only uncertainty is by how much. But, as I’ve talked about before, it is an exercise worth persevering with.

An effective budget is a vital tool for building a successful business. Putting one together is no small task however it shouldn’t be viewed as a once a year job. In real life new opportunities or challenges rarely come along with perfect timing so that you get notice just before you create your budget.

Would you turn down a golden opportunity just because there was no spend allocated to it in your budget? That’s like saying would you pass up a sale because you’ve already hit your target?!

To manage a business effectively you need to stay flexible and reflect what’s going on in real life. If your budget is a work in progress then it can be an useful tool to refer to when you’ve got decisions to make. You can answer the “what if” questions and see how a single choice fits in to the bigger picture.

Numbers are good that way – word descriptions are subjective, but numbers (obviously chosen with care and consideration) give a more objective interpretation of the likely effects of a decision.

So how do you make this happen?

First, the key report you need is one that marries actual financial performance so far with the budget for the rest of the year. Then you need to keep updating it with both new actual results and amended forecasts that reflect your ever improving understanding of what the future holds.

Then, when a new opportunity crops up, there are two questions to ask:

1. How good is this opportunity?
Does it advance the business towards its strategic goals? Does it deliver profit and/ or additional cash? Does it deliver other non financial goals (reducing carbon emissions, improving resilience, etc)?

2. Do we have the necessary capacity?
This is both in terms of the financial capacity to invest in a new venture and capacity within the organisation to manage the workload that it will entail.

Available capacity changes as it is continually influenced by current performance so having a reliable, up to date picture of how the business is performing as the year goes along is crucial.

Maybe this sounds like a lot of work, but it’s what management accountants love! If you want to review how well financial planning works in your business then get in touch.

How to plan for an unknown future?

Posted on by Susie Kevern

How can you plan for the future when you don’t know what it holds? Come to think of it: what do you not know about your business?

December is usually a busy month for business planning with my clients as we spend time looking at the next year in more detail. That tends to be true even when their year end isn’t December 31st – the change of calendar year is a good time for reflecting on progress and looking ahead to the future.

However 2020 has already been littered with new forecasts, re-forecasts, new opportunities and dashed hopes. We’ve pretty much exhausted all the options for revising the financial detail!

Instead, I’ve set aside time to think about, and crucially, document the things that we don’t know about the future.

We don’t know whether there will be more coronavirus disruption in the New Year, or the impact that a vaccine will have on the economy – can it stave off the predicted recession? We still don’t know what Brexit will throw at us, but we’re used to that by now!

But what about other risks?
What if one or several of your customers moved their business elsewhere? What if one went bust? How reliant are you on a particular customer? What’s the spread of business (and importantly profit) between customers? How much do they owe you?

Where* do you think the risks could be? (* you’re bound to be wrong here, but considering the risks is still valuable). What action can you take to get better information, or reassure yourself?

How about your suppliers? How quickly could you replace one if they hit problems? How close are your relationships with key suppliers? And while we’re on the subject do you have adequate back up if a staff member handed in their notice?

Do you have deposits or prepayments with suppliers that you depend? And what about directors loans? This is getting generic now, because every business is different but hopefully you see where I’m going.

While this isn’t a cheery, “season of goodwill” sort of message the point is that a relatively small amount of time working out what you perceive the risks that your business faces are will let you start to plan around them. You will bear them in mind when you make decisions, perhaps even subconsciously. And most importantly when the worries are on paper, not stuck in your head, you can sleep better at night.

So what did I find out about the businesses I work with?

Firstly, I find it’s always enlightening to look at all my clients together (in private of course). They are a diverse bunch: small and not so small businesses in different sectors.

However looking at the challenges in one can spark off ideas about the challenges in others and that’s one of the benefits of having an almost outside perspective on the business.

The risks that I identified initially were:

  • Unsurprisingly Brexit is still a big unknown (no prizes for guessing that)
  • Continued Covid disruption (don’t even mention the L word) will either be a bonus or a hindrance depending on sector
  • Reliance on key staff is a threat everywhere, which is true of any small business. That’ll result in more efforts to document and share information in the New Year; improving contingency plans especially where business owners are concerned
  • A bit of work needs done thinking about the reliance on certain key customers and what can be done to reduce the impact if they were to disappear
  • And in one business we need to monitor the levels of cash paid upfront to suppliers – cash that would be lost if that supplier was to cease trading

So plenty of work to be done in the New Year thinking about future proofing business, even while we don’t know what the future holds.

If you would like to take a look at where the risks may be in your business give me a shout; I’m always keen to help. You can find out more about how I help my clients here.

Avoid second lockdown cashflow crisis

Posted on by Susie Kevern

Does a second lockdown mean cashflow crisis for your business? What can you do to avoid it?

We know that a lot more businesses are allowed to stay open this time than were able to in March, but staying open is not necessarily a good outcome. A lot of SMEs have used up what little cash reserves they had and are facing a tough winter.

Recent surveys have shown that 33% of SMEs think they will be impacted worse by this second lockdown and 20% are predicted to not make it through.

So what can you do to help your business avoid a second lockdown cashflow crisis?

Unfortunately I don’t have any miracle cure but the things that I have seen working to help businesses are:

  • Make sure you have an up to date cashflow forecast and try to make a list of the assumptions that you’ve made in it – how much, how often, what credit, is it realistic?
  • Look out for opportunities to cut costs; insurance may be getting more expensive at the moment but energy costs and interest rates have fallen. There are also grants available for investing in energy efficiency measures which may pay off in the future.
  • There are new extensions to both the bounce back and CBILS loans which may support your cashflow even if you have already used the facilities on offer.
  • You can “top up” an existing Bounce Back loan to reflect your new circumstances or use the government backing to add invoice financing or maybe an overdraft facility to an existing CBILS loan.
  • In addition to this the repayments can now be spread over 10 years which reduces the cashflow effects significantly. You can find my earlier advice on applying for CBILS support in this post.

The most important thing to do is to make sure you have accurate, up to date information to base decisions on: knowledge really is power here.  And check out my checklist for adapting your cashflow forecast for lockdown II to make sure you have a picture of the future that you can rely on.

SOS – help managing cashflows in distress?

Posted on by Susie Kevern

The saying “Cash is King” is very true: profit doesn’t pay the bills. But that doesn’t help when there just isn’t enough cash to go round and you need help with managing cashflow and getting out of trouble.

This is the final instalment in a series of posts that I started during the summer looking at the impact of the Covid disruption on cashflow and suggesting ideas for action to improve it.

Background
Recently it has become clear that the government does not feel able to support every business that is struggling with the impact of Covid. This has been greeted with dismay by a large number of businesses who would be financially viable were it not for the restrictions that are currently in place.

With the prospect of social distancing and local lockdowns continuing for the foreseeable future what can be done to ease the pressure? Solutions to cashflow problems are always individual to a business; dependent on what assets they have and the owners’ attitudes to the risk that they may be undertaking. So I want to talk more here about ways to approach your own issue in order to make a meaningful plan.

How long has this been going on?
If you stand back and think about the last few years (life before Coronavirus) was everything rosy then? In most cases lockdown in March was a bolt from the blue that upset a profitable, stable business. But in some cases the business was lurching from one emergency to another trying to keep ll of the creditors happy with limited funds.

In both cases there are big challenges ahead, but how you approach them depends on whether things getting back to “normal” will help cashflow.

Furthermore, what do you think needs to happen in order to improve your situation? This is largely going to be outside of your control, but working through a range of scenarios could help you to understand how changes in the future will impact your business.

Back to drawing board
My focus is always on the cashflow forecast. At times like this there is no other way to manage your business.

With the information you have can you work out a basic level of spending every month? A “burn rate” will help you understand how much cash you need to be taking each month in order to sustain your current spending. This is different from breaking even from a profit perspective; for a start it will include any loan and finance payments. But more importantly you need to think about setting aside money for VAT every time you get a customer payment to avoid shocks at the end of the quarter.

With this information on hand how long can you keep up the current spending rate for? What can you do to slow down the burn?

Challenge your assumptions
Sometimes the forecast doesn’t look as bad as reality – usually this highlights that customers are taking longer to pay than the terms that were offered to them. This is quite common in the current circumstances. It may be that time spent calling customers and chasing debts could pay dividends here, even if you need to agree to payment plans.

Rent arrears & payment holidays
The Coronavirus Act provided protection for businesses who were not able to pay their rents and this has been extended now until December 31st 2020. However the best course of action would be to discuss this with the landlord; the law purely limits the potential for eviction – if you want to remain in the the lease the rent will need to be paid at some point.

Also, many lenders have offered payment holidays on loan repayments. But once again, this simply delays the spending rather than taking it away, so the impact needs to be carefully considered before any action is taken.

With nearly two months left to apply for a Coronavirus (CBILS) or Bounce Back loan there is a chance to access additional cashflow if you have not already made use of the facilities. There is now a wider variety of lenders offering CBILS loans, and some may take a more innovative approach than the high street banks did during April and May, so it could be worth looking again at this if you were unsuccessful earlier in the year.

There may also be opportunities to re-finance larger assets or even renegotiate existing loans in order to slow the repayments and support cashflow.

The bottom line
Hopefully there are options to be looked into to try to hold on to cash within your business, but realistically these may not all be possible or palatable given the current state of the economy.

The biggest worry that I come across when discussing cashflow issues with struggling businesses is that often the business owner has given a personal guarantee against a business loan or there are other assets which would be forfeited if payments were not maintained.

If you are worried about your circumstance it is worth taking advice now. I am talking to clients all the time about help with managing cashflows. Every case is individual, but since March the government has brought in temporary changes to the insolvency law to allow Companies to continue in business while recovering from the financial impact of the pandemic. A number of these measures have now been extended further until December or even March 2021.

However there is nothing to be lost from consulting with an expert; an Insolvency Practitioner or experienced accountant, to ensure that you are making the right decisions. Insolvency Practitioners are often seen as being scary, harbinger of doom but in my experience they are always professional but also approachable, practical and experts in helping businesses in distress. Better to spend a little time discussing the situation with a qualified adviser than to spend weeks agonising over your fears.

At the end of the day, if you are worried ask for advice, get organised and be realistic. 

For more information, take a look here at how I can help businesses understand what’s going on in the finances and plan for healthier cashflow.

Case Study: AMZCO Construction

Posted on by Susie Kevern

AMZCO Construction specialises in building and maintaining anaerobic digestion plants. They work on a small number of complex, multi million pound projects meaning that it is vital that they have timely, reliable information to help keep control of the finances.

On these projects it is easy for costs to spiral out of control so accurate comparison of spend vs budget is essential. The directors couldn’t see how profitable different activities had been or compare actual performance to the detailed budgets drawn up prior to the build.

The accounting software they were using was complex difficult to maintain but it was not possible to change software immediately so some other solution had to be found. I worked with the admin team to make sure that the accounts were accurate and reliable. With good data we could then extract the detailed information required to show actual spend vs budget and explain the overall business performance.

Once pre-existing errors were corrected we were then able to migrate the accounting to QuickBooks at the start of the next financial year, making the bookkeeping much more efficient and the reporting easier and more accurate.

With clear and comprehensive reporting the directors could manage the business effectively. More importantly, information showing spend versus the original budget was vital information to improving pricing on future jobs.

Now we are continuing to work together so that they have access to the support they need as and when they need it.

Business manager Rachel said: “Susie created the reports we needed to keep track of the business and have control over our finances. She has been supportive and friendly, delivering QuickBooks training and designing new systems to suit our business. Knowing that she’s keeping an eye on the finances means we can get on with running the business.”

You can read more and download the case study here: Case Study: AMZCO Construction

Get more information from your accounts

Posted on by Susie Kevern

Why is it that all year end accounts look the same? Does that reflect the information that readers need?

Accounting regulations are massively complicated and I am not disputing the need for that; it is important to make sure that any two sets of accounts can be compared with each other and take the same perspective.

The same thing happens with accounting software: when you set up software from scratch you get a basic, blank set of accounting codes that is a best estimate of what most businesses need.

In both cases the one size fits all approach is fine when it comes to working out the bottom line profit, when you’re simply deducting all costs from total income. But it’s totally insufficient if you want to use your accounts to provide information to manage your business with.

What sort of information might you need?

  • What about income: are you happy to lump all sales together, or would it be useful to compare revenue from different types of sales?
  • How about splitting sales by product type or customer location?
  • And what about your costs? You don’t want to over complicate things, but typically the objective is to separate the costs associated with delivering the product or service from the general costs of running your business.

This lets you measure how things are changing and provides answers to questions like “how come are we busier now but not making any more money?”

How about looking at

  • A comparison of your sales mix (spread of sales by product type),
  • a comparison of margin per customer,
  • the resulting change in percentage gross profit made on sales each month as a result

With a little planning and some organisation you can set up the accounts so that they give you simple m information that you can use to work out what actions to take.

If you want to develop this idea further, what about adding in some comparisons with non financial figures? Working out production wages per working day, or sales per hour worked?

How do you work within the structure? Do you add new codes for things you want to measure, or do you just squeeze them into the existing structure?

At the end of the day, while there is a legal duty to keep accurate accounting records are you in business to create data for the accounts, or are they there to provide you with information?

Take a look at my post about what goes into good management information here to find out more.

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

Good management accounts

Posted on by Susie Kevern

Financial Direction is about using good management accounts to improve profits and cashflow. That’s a pretty big claim, so what do I really mean?

Xero produces management reports for you (other software packages are available). They look very similar to the accounts you get at the end of the tax year, but the value comes from looking at them on a more regular basis – usually monthly – and in more detail.

Unfortunately just printing out the reports can give misleading results. Think about:

Are your accounts up to date? This sounds simple, but isn’t as common as you’d think.
Timing: if you deduct a whole year’s insurance costs from just one month’s sales your results may be skewed disastrously. This is where stock counts come in and also prepayments (spreading an invoice over several months) and accruals (estimates of costs not yet invoiced.

Once you have accurate and reliable accounts you can choose whatever figures you want to shed light on what’s going on “under the hood” in your business: really, the sky’s the limit.

Just to start with you need:

  • The right level of detail: maybe you want to bundle all office costs together but how about separating staff costs between office staff and production workers?
  • A profitable history is reassuring, but it’s the future that really matters. A forecast will show you where the risks are.
  • Then you need some KPIs that show how healthy the business is simply and speedily:
          • Financial: debtor day, profit margins, growth rates
          • Non financial: customer numbers, spend per customer, open orders
          • Variances: how this month compares to last month, or to forecast
        Good management accounts should give you information to identify the actions required to steer the business towards your objectives and track the results.

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