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Tag: Planning

Planning to avoid energy horror this winter?

Posted on by Susie Kevern

Do you have an energy strategy?

Even with the governments proposed interventions energy costs feel like they are spiralling out of control. Energy has been a relatively predictable cost over the last couple of decades, but as with Covid lockdown, uncertainty makes any sort of planning for the future seem risky. However planning is vital as this will have a big impact on cash flow planning.

While I was tidying out files last weekend and came across an articles that I had pulled out of CIMA’s members magazine in 2012. Energy costs were rising at that point, but the article seems ahead of it’s time now.

The positive thing about looking to reduce energy costs (and therefore usage) is that it also reduces your carbon footprint and improves future energy security.

1. Develop an energy saving strategy. Massive price rises make small steps like checking insulation, draught proofing and getting an energy performance review seem trivial. However these can also be relatively easy ways to start reducing energy usage, so make a good place to start. Furthermore, investing in building improvements will often qualify for tax savings.

2. Promote a change in staff behaviour. We are all aware of the current pressures of cost and the need to reduce carbon emissions. Welcoming and even offering rewards for ideas from your team for ways to improve energy efficiency gives everyone an opportunity to contribute

3. Look for quick wins: the same things that you’d do at home. Review your energy deals (that advice may not have aged well), turn the thermostat down a little, etc.

4. Monitor IT energy consumption. As we have transitioned to paperless offices and video conferencing we are using IT more and more. Staffordshire University studied their IT energy use and found that desktop monitors consumed 30% of their energy use while they were idle, and 40% outside of office hours. By encouraging users to turn off monitors when they were not needed they saved £65,000 per annum.

5. Install a smart meter (again, this may just frighten you more at the moment)

6. Use an energy management system. Similar to the principle of smart meters, detailed information about where energy is used allows targeted, informed action to reduce spend. Working to reduce the big energy usage slightly makes the impact far more noticeable.

7. Check efficiency of machinery. Whether this is IT, air con or machinery, everything works better when it’s regularly serviced. Compressed air leakage is often a huge (avoidable) source of energy waste in manufacturing companies.

8. Finally, because we’re accountants… manage the financials more effectively. Can you breakdown utilities by type, supplier, site? Getting better information about what’s driving spend to team leaders who can make changes allow them to act. Good data is essential to make good decisions.

In the current climate the article would probably have added “keep your fingers crossed” but taking action to combat the current price pressure and reduce future reliance on energy is much more effective.

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.

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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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.

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.

When it Rains…

Posted on by Susie Kevern

“When it rains, look for rainbows.

When it is dark, look for the stars.

When it’s raining and dark… you should take care to look where you’re going and consider whether you’re still heading in the right direction”

Courtesy of Oscar Wilde, but paraphrased during a Francis Clark webinar last week

Why bother with a cashflow forecast?

Posted on by Susie Kevern

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With CBILS, Bounce Back Loans, VAT deferrals, grants etc there may be more cash in the bank now than ever before and your cashflow is sorted for the next couple months.

But what happens after that?

Lockdown has probably helped the bank balance with customers paying while you’ve been running down stocks or furloughing staff. However the problems will come when customers start buying again: you’ll need to buy new stock or pay wages for sales that take a while to be paid for.

Right at the point where your bank balance has run right down you’ll need to invest more in your business.

In addition to this you need to keep an eye on payments due in the future.
Corporation Tax: usually paid October or January
Self Assessment tax: due January
Deferred VAT: due March 2021
Loan repayments: starting May/ June 2021
Plus regular VAT due every quarter regardless of other cash spend

A lot of this cash is heading to HMRC so perhaps a phone call will stem the flow? But that only drains cash from next year’s profits and stifles growth potential.

A plan for the future is vital, which means some sort of cashflow forecast. Even if it’s just a rough estimate, that plan allows you to see what pressure you’ll be under and give you time to take action.

And if you’re going to take action, the sooner the better.

Sometimes getting started is the hardest step to take. If you need some inspiration why not download this cashflow checklist, or if you would like further help then get in touch.

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Does my Business Plan need a Mission Statement?

Posted on by Susie Kevern

Mission statements are just corporate waffle, about “empowering”, “finding new paradigms” and “evangelising findings”. Right?

Recently I have been working in developing Business Plans with two (very different) clients. As part of my preparation for this I started working on my own Business Plan.

It has been about two years since I wrote my original plan. At that point I was just beginning – exploring what I wanted to do and trying to work out what my clients valued about the work I was doing for them.

So it was very vague in some ways, but it was specific in others. For example I knew, and wrote down that I wanted to limit my working hours to school hours, and then only during term time.

This has proved really valuable – when things were going badly I could remind myself what my original idea was and see that if I could pull it off it would be worth it.

Once or twice people suggested full time roles to me which would have been financially lucrative, but demand much more time. My written down business plan enabled me to compare those opportunities to my expectations and see if a job was something that was worth sacrificing my flexibility for. Clearly it wasn’t, or I wouldn’t be writing this now!

Over the course of the last year things have gradually fallen into place and so it seemed like a good time to refresh my business plan to fill in the gaps in the previous one, and set new targets for the next few years.

I have developed my own template for my clients’ Business Plans; a bit more personal and detailed than some of the generic internet ones but basically covering the same material. So, I worked through it and finally came to the mission statement (I think you should leave the Mission Statement to last, because sometimes it’s difficult to understand what’s important until you have focused deeply on what you want to achieve and how you’re going to do that.

Initially I thought that I might just write a sentence, but I have recently read “The 7 Habits of Highly Effective People” which extols the benefits of having a Mission Statement that means something to use as a guide to what really matters. So I really thought about it and lo and behold I settled on:

“I will help small businesses control their outcomes by taking the time to understand their practices and problems and by respecting their hard work and their trust in me. ”

This reflects my clients’ feedback on how they feel about the way I work, but most importantly I feel that if I can stay true to this I will be really proud of and fulfilled by what I do.

With a Business Plan that’s written down I have the ability to look back in one, two or even five years and see how the actual progress compared to my plan.

So, to answer my original question, I think my Business Plan is better for having a statement at the beginning that sums up, in one sentence, what it is that’s important to me and what I’m aiming for.