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Tag: Strategy

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.

Planning for successful business innovation

Posted on by Susie Kevern

Every business needs to innovate, to stay relevant to their customers and stay ahead of their competition. But successful innovation requires thorough planning and careful implementation. Financial planning is a key part of this.

Lets face it; it’s easier to come up with new ideas to grow your business than it is to implement them. Change is always necessary, but needs to be carefully planned to avoid destabilising the successful business that you’ve taken time to build.

A key part of the planning is what I think of as “Sequence and Cadence”. You could say that they’re the same thing, but bear with me – the difference is subtle.

For successful innovation you must plan to allocate enough time and resources to new projects to allow them to reach their logical conclusion (the cadence) but also balance the timing of competing projects so that they don’t drain your core business of the resources it needs to continue (sequence). A collection of half finished plans could be worse than no innovation at all!

Cadence

When you set out on something new; a product development, a new marketing campaign, etc, you have to commit sufficient staffing/ management/ capital/ investment/ time to give it a fair chance of succeeding. Even the most promising ideas struggle to reach their full potential if they’re starved of the necessary budget or attention. Each project is inherently different, so there’ can’t be a generic “one new development per quarter” approach.

In budgeting, and business planning in general, it’s vital that you recognise this and reflect it in the numbers. It’s also worth thinking about a “what if” analysis: what if progress has been slower than expected but you’ve come this far and giving up now would waste all the hard work – you just need a few more months (we’ve all been there…). When do you draw the line and move on to new opportunities?

Sequence

Sequence is about the bigger picture. It’s when there are multiple projects in progress but a limited amount of investment (time or money) to go around. If you spread your resources too thinly you could end up doing catastrophic damage to the whole business even if individual projects are growing nicely.

A resilient business model has to be grounded on profits and cash from established products and markets. New lines may promise great rewards, but the investment of time and resources that they require will take up cash and add to spending while they are establishing a niche.

This is especially true when the new sales involve customer credit. They can deliver new sales, but the cash doesn’t arrive in your bank account to pay for new marketing efforts until a month or two later.

Keeping an eye on the timing of expected spend and income from new projects is the sort of planning that is much easier with detailed budgets and cashflow plans. Information on how good that glittering opportunity actually is, in comparison to what you’ve already got, and highlighting where the pressure points may be gives you the chance to model how you could work out strategies to keep business running smoothly.

You can find out more about how I help businesses manage their finances here.

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.

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.

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.

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

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.