Do You Really Know the Financial Metrics Driving Your Business?
It may seem like an odd question but it is surprising how many business owners don’t really appreciate the metrics that drive their business, let alone how best to act on them. For example, if you have 50 different products available, how profitable is each of them? Is there an effective costing system in place? Are they equally viable and important? Will they stand the test of time, or do they have a limited shelf life? What are your overhead costs? Are they realistic? As the owner of a growing business, it is essential that you always have the data you need to answer those questions accessible to you and that you get the advice you need to effectively interpret it.
This is why the first thing we do with you when you become a client is conduct a full Business Health Check, where we gather all the data we need to create an objective, accurate picture of the state of your business. We will look in-depth at what your business is doing, and why you are doing it, identifying where things could be done in a more cost-effective manner. Rather than simply telling you what you’ve done after you’ve done it, we want to identify and implement ways of making a serious difference to your business’s bottom line.
This doesn’t just mean looking at the profit and loss – it’s also important to look at the actual cash flow implications. For example, if you are talking about giving everybody 90 days credit, but everyone that you’re dealing with is going to give you 30 days credit, how are you going to fund the difference of 60 days? Many businesses fail not because they’re insolvent, but because they haven’t got the cash available when they need it. Far too many business owners never consider this until they run into problems, at which point it becomes a matter of sitting down and talking with their bank manager, or possibly changing their terms in order to salvage the situation.
A common objection to the above scenario is that most customers will take 90 days to pay, so the system described is a perfectly logical one. However, although customers will certainly take 90 days to pay if you allow them to, this needn’t be the case if you work out a proper credit control system. For example, you might send clients who are late with their payments a reminder on day 40 and a full legal letter on day 50. It’s all a question of being systematic.
Why Business Finance Is Never a One-Size-Fits-All Solution?
Although there will naturally be certain elements that all businesses have in common, when it comes to developing a truly integrated approach to business finance, the differences between different businesses in different Industries will need to be taken into consideration in order to identify the most effective solutions.
For example, IFAs are generally primarily interested in staying up to date with their quarterly compliance in order to keep the FCA happy, so we can best help them by making sure their quarterly returns are handled properly. On the other hand, estate agents will be managing properties for landlords and paying bills on their behalf, so their primary concern is likely to be ensuring this process runs smoothly. In the case of restaurants and pubs, we generally work with them on their margins, to make sure they will be 100% protected in the event of a tax investigation.
Similarly, different Industries will have different standard practices, which will affect the way they manage their finances. For example, cash virtually never changes hands in the publishing industry as everything is done and paper, while the construction industry is the exact opposite.
This level of personal attention is essential if our solutions are to prove effective in the long-term.
What Is Forensic Accountancy and When Do You Need It?
Forensic accountancy is a particular speciality for us. This is simply the practice of investigating and reporting on fraud cases in order to determine whether someone was or wasn’t deliberately fraudulent. The exact nature of our involvement in cases like this can vary. For example, in one recent case, we worked with a couple who admitted they had defrauded the DWP. However, our investigations subsequently found that the DWP had broken the law and had acted fraudulently by denying them benefits they were in fact owed. As a result, although our clients were found technically guilty, they were only fined a penny and all costs were awarded against the DWP. On another occasion, we were involved in a case where someone was suing their accountant for incompetence. Our role was to determine
once and for all whether the accountant was actually at fault or whether their former employer had simply failed to heed their advice.
As a neutral third party in situations like this, we are often able to ensure situations do not become worse than they have to be and can be resolved in as fair and manner as possible.
What to Expect at Your First Business Finance Review
During our first meeting with you, we will discuss who is doing what within your business and to what extent. Do you have a full-time bookkeeper? If so, how good is their work and how much information are they getting? This last question is especially important; it’s amazing how many times we find that the information needed to drive business growth is already available, yet no one within the company is actually looking at it.
Many businesses only look at their accounts once a year, when their accountant prepares them, but in our experience this is a mistake. We would advise you to look closely at your accounts every month, otherwise you could be losing money without even realising it. We can support you in this regard and look for ways to save money in the monthly figures. For example, let’s say you made £100,000 profit during your first 9 months, on which you would have to pay £20,000 corporation tax. Once this has been identified, you will have two months to do something about the tax implications. It is only possible to make savings like this if you start thinking about your taxes well in advance rather than waiting until after you have received a large bill. If you know what your next tax bill is likely to be, it gives us a chance to put some tax planning in place in order to minimise your liability.
Should You Outsource Finance If You Already Have an In-House Bookkeeper?
Many growing companies will already have a dedicated bookkeeper who is responsible for their payroll and possibly other aspects of their finances. However, real-time payroll is very demanding and time-consuming to manage, especially as companies get bigger, so it’s not uncommon for bookkeepers to reach the point where they ask their employers to outsource the company payroll, as it is starting to have a negative effect on other aspects of their work. Furthermore, the bookkeeper won’t necessarily have any control over how the businesses’ staff act on their data (indeed, in many cases the data just sits in a folder until the time comes for the annual accounts!)
Are you a seasonal business? Does it flow throughout the year and if so, is there a trend? Is your turnover down? Are your margins down or up? These are the sort of things that you should be looking at every month.
We analyse this with a growing number of firms. We want to be with these companies working on their figures on a daily or monthly basis rather than waiting until the end of the year. Experience has taught us that this is the only way to translate data into serious business growth. In addition, we will actually advise you on how to interpret and act on your data using our software, as there is no guarantee that you will always have someone within your organisation who possesses the necessary knowledge and experience for this.
Take VAT for example; when businesses have bad debts, they often just write them off, despite the fact that they could easily claim the VAT back on them! Similarly, many businesses don’t take the time to reconcile their banks, but if you make a habit of this, how will you keep track of your cheques in the event one or more of them are not banked? If, for instance, you have five cheques currently out, yet not all the money has disappeared from your account, you need to know exactly which cheques still need to be banked, how much they are worth and how old they are. You need to make sure that what your book says actually matches up with the reality of what is sitting in your account at any given time.
Which Business Finance Services Does Your Company Actually Need?
This all depends on the level of inputs you feel you need from us. For instance, our most basic package will involve us taking care of your taxes and account preparation, whether you are a sole trader, partnership, LLP or limited company, to which we might add payroll consultancy services.
The amount of input you will require from us is likely to depend on your annual turnover. For example, if you are a relatively small company at this point in time, it could well be that you will just need us to come in once a month, collect and process your data, and add it to your cloud system that we manage for you, so it is accessible to everyone within your organisation. What most clients in this position tend to prefer is to handle their sales invoices and bank receipts themselves, while we take care of the rest, although as we have said, it is all a question of what suits you.
How to Protect Your Business from Financial Disasters and VAT Investigations
Of course, even with the best planning and preparation, disaster can sometimes strike. However, if your business is hit by unexpected problems, we will support you to ensure the situation stays under control and any long-term damage is minimised.
Another common problem faced by businesses is VAT investigations. When these are initiated by HMRC, it is usually because someone within the business has misunderstood their responsibilities with regard to VAT, claiming VAT on everything when it is not necessarily applicable to all their purchases. Situations like this can easily be avoided if you regularly review your businesses’ accounts and engage the services of professionals who can advise you on specialist subjects like VAT.
Don’t assume that you and your staff will necessarily possess the skills and experience to handle every single aspect of your business’s finances, no matter how capable you are at what you do. It is far too easy to leave yourself liable this way, especially if you aren’t yet conducting regular reviews of your accounts. The resulting peace of mind will more than justify the extra time and effort. Remember that as a director, partner or sole trader, you could be personally liable for fines.
Full-Time vs Part-Time Finance Director: When Is the Right Time to Hire?
Many business owners like the idea of a full-time finance director but simply can’t afford it. However, if you are currently in this position, you may still be able to enjoy some of the benefits of a finance director’s services.
Many growing companies do not actually need a full-time finance director and would happily gain similar benefits by simply engaging the services of a part-time finance director once a month to conduct a review of the management accounts. This represents a considerable saving yet can still prove invaluable to the business.
You may eventually reach the point where a full-time finance director would be a sensible option. This point will largely depend on your margin, the number of staff you employ and the nature of your industry. For example, one business may need a full-time finance director once they reach a turnover of a quarter of a million pounds, while another may be turning over 5 million, but still not need one.
Having an objective pair of eyes look at your business can be a great help when it comes to deciding whether a full-time or part-time finance director is right for you. If you are unsure, we will always be happy to set out the advantages and disadvantages for you when we review your business.
Why Hiring Multiple Firms to Manage Your Finances Rarely Works
We are often asked why businesses can’t just hire someone to take care of their payroll, someone to take care of your taxes and so on, in order to benefit from as many specialists skills as possible. Although this may seem like a good idea, in practice it rarely works well. When we engage with businesses for the first time and start looking for where things are currently going wrong for them, we often find that they have multiple professionals working for them, yet channels of communication between them are virtually non-existent and no one has taken responsibility for coordinating their work.
As a result, it becomes much harder to identify the real cause of problems, as nobody is clear on what everyone else is doing, or how their own work fits into the big picture. This often means that people start blaming each other for problems within the business rather than looking at what they need to do to fix them, so progress becomes difficult to achieve. It’s far better to have one firm take responsibility for your business’s finances, coordinating their own team and any specialists who need to be brought on board. This way, everyone involved will be held accountable for their performance and the chances of miscommunication will be minimised.
