Insight Associates provide outsourced accounting and Finance Director services to ambitious and growing businesses. We work as your only resource or with existing staff to give you complete financial support including monthly management accounts, high level financial advice, robust controls and financial systems, funding and business planning, payroll & compliance, VAT returns and statutory compliance.

Successful business leaders have all the information they need to make good decisions…Do You?

Wednesday, May 25, 2016

The Danger of Being Profitable


Ashley Cooper's business was about to go under.

 

In just a matter of hours, he needed to make a $270,000 payroll.

Only one problem: He didn’t have the money in the bank.

If the staff at his firm, Canada’s Paladin Security, cashed their cheques (this was in the mid-
1990s), the business would be so overdrawn it would have to close.

There was no one to lend him the money. He lay awake all night, certain he was about to lose everything.

Luckily, this story has a happy – and somewhat miraculous – ending.

That very day, several clients paid their overdue bills. Cooper quite literally ran to the bank, and was able to pay his staff. 

“It was our biggest deposit ever at that time,” he told The Globe and Mail newspaper 20 years later. “Sometimes there’s a great white light that shines on people.”

So how did Cooper get into so much trouble?

Simple.

His business had been growing so fast and was so profitable, that he just assumed he didn’t have to worry about money. Paladin invoiced late, didn’t follow up on late payments and paid all its own bills on time, whether or not they had the cash.

When its customers’ cheques failed to materialise, the company nearly closed.

It’s an important lesson for every business owner.

Lots of sales does not necessarily mean that you have money in the bank!

It’s really easy to get complacent if you’re profitable.

But some of your clients may regularly take 60 days to pay you. And you always risk dealing
with customers who either cannot or will not pay.

If, in the meanwhile, a big VAT bill arrives,

…or if you have splurged on several big pieces of equipment,

….or just opened a brand-new office,

it’s game over.

As CEO, you need to be constantly aware of how much money is coming in and out of your company. Make sure you know when customers are due to pay you, when you’re expected to pay bills and when there might be a gap between the two.

That way, if you forecast a shortfall you can act to avoid catastrophe, for example by negotiating more favourable payment terms with your suppliers or shifting payment dates.

Look at your cash flow statements on a weekly, if not daily basis.

Now, I know that more than likely, the sight of a spreadsheet causes you heart palpitations…. You are uncomfortable with numbers…. And your accounts may as well be written in Chinese.

But don’t delegate this task.

Running out of cash is the number one reason why businesses fail.

And it happens the whole time to businesses whose CEOs were sure they were safe, because they were profitable.

As a direct result of his experience, Cooper hired a finance director, instituted strict credit control and increased the line of credit with his bank. With good cash flow and proper financial systems, Paladin’s growth was much smoother. Nowadays, it turns over more than $1 billion a year, and is one of Canada’s leading firms!

Garry Mumford is author of the free guide, The 5-Step Process To Get Your Customers to Pay on Time, Every Time. He is founder and Director of Insight Associates, which since 1992 has been providing owner managed businesses with the financial insight essential for development and growth.

Wednesday, May 18, 2016

The Unprofitable Underbelly Of Your Business


Have you ever heard of the Pareto Principle?

It’s the idea that 20% of your effort generates 80% of results.

So, for example, 20% of your salespeople are responsible for 80% of sales.

20% of your business’s branches bring in 80% of your revenue.

And 20% of customers generate 80% of your turnover, too.

Well, obviously it’s not always exactly 80/20. But there’s a scary and actually slightly depressing imbalance between the small areas of your business that create lots of value – and the majority of things you and your staff do every day, which matter a lot less.

Why is this important?

Last week I explained that in order for your business to really thrive, you need to work out which products and services you offer are most profitable.  Then you can concentrate on the profit-making side of the business, and either optimise or drop the products and services which are dragging your business down.

But that’s actually only the beginning of the story. If you really want to understand where the profit lies in your business, you need to apply the same approach to every area.

Analyse which suppliers allow you to operate at the highest profit margins…. And which may actually be costing you money.

Examine which members of staff are generating the most value for you…. And which are sitting at their desks surfing the internet, doing nothing!

You even need to look at the way you spend your own time.

How much of your day are you spending on activities that are really pushing your business forward, for example formulating a business strategy, finding new business and - of course - ensuring that your cashflow is running smoothly? And how much time do you spend bogged down in £10/hour work that could be performed by your intern?

Once you’ve established underperforming areas, you can decide whether there’s room for improvement, or whether you should get rid of them altogether.

In reality, you could probably endlessly segment different areas of your business that way.

….And I suggest you do!

There are likely vast areas of your business which are not generating profits or advancing your company in any meaningful way. 

Your goal should be to maximise what’s profitable and minimise what isn’t.

Therein lies the road to riches.


Garry Mumford is author of the free guide, The 5-Step Process To Get Your Customers to Pay on Time, Every Time. He is founder and Director of Insight Associates, which since 1992 has been providing owner managed businesses with the financial insight essential for development and growth.

Thursday, May 12, 2016

It Doesn't Matter Who Signs the Cheques


A few years ago, I was working with a distressed business that had begun a process of formal insolvency. While I was with the interim CEO in the call centre, surrounded by people with headsets, he was approached by someone who wanted him to sign a cheque.

He screamed out (…and I’m leaving out some of the profanity here): “I don’t care who signs the cheques – who signed the purchase order?” 

It turned out that someone in the company had ordered much more computer equipment than the company could afford – or get rid of. But by the time the CEO was asked to sign the cheque, the merchandise was already in the warehouse.  Because the CEO didn’t have control over the purchase orders, he had no choice but to pay up anyway.

The CEO had it right.

If you’ve got to the stage of having to sign a cheque, it’s already too late to start managing your expenditure – the damage has already been done. You will already be committed to making the purchase whether you like it or not.

And yet many companies are very strict about who signs the cheques (or more likely electronic payments these days), and not nearly strict enough about who places the orders in the first place.

As CEO, it is your responsibility to ensure that money is flowing through your company properly.

If this is a problem in your company, it may be a good idea to take temporary control and sign off all orders yourself. That way you can see what employees are spending money on and how much, and if necessary challenge them in time to make a difference.

You may discover that even if they are spending reasonable amounts, they are spending them on unnecessary items, buying too much, or paying too much. Check the prices they are paying against those you can get elsewhere. There are plenty of businesses out there suffering because they’re not getting the best deal.

Challenge everything, from paperclips to £100,000 pieces of machinery. You will find that as soon as your team realises that their orders will be properly scrutinised, they will be much more careful about their orders themselves.

If your business is operating with slim profit margins, like the one I described above, then those savings could be incredibly important to the success or otherwise of the entire operation.
 
If this is a process you would like help with let’s talk. Not only can we help you sort out your expenses and cashflow, we’ll put in place procedures to ensure you always maintain control.

Garry Mumford is author of the free guide, The 5-Step Process To Get Your Customers to Pay on Time, Every Time. He is founder and Director of Insight Associates, which since 1992 has been providing owner managed businesses with the financial insight essential for development and growth.

Wednesday, May 11, 2016

Show me the Profit


“It’s been an amazing year – our best ever,” our new customer told me. “We brought on two enormous new contracts, which has made all the difference.”
In fact they’d just broken the £1 million mark, and by the sound of things, they were going to grow even faster the following year.

But then we took a look at their accounts……..
And the full horror revealed itself.

Unfortunately, while their turnover had grown by leaps and bounds, so had their expenses. By the time we accounted for all their overheads – including admin costs, some extra contractors, raw materials and more – there was virtually no profit left.

When I broke the news to the company owner, he was incredulous.
“But I don’t understand!” He repeated several times. “We’ve brought in more this year than ever before. How is that possible?”

Unfortunately, he was making a common error, confusing turnover and profit.

While most of us understand the difference in theory, it’s very easy to get wrong in practice.


Like this gentleman, many business owners are distracted by the large number on the monthly invoice, and miss the fact that this “desirable” contract is killing their company.
Others believe they know where the profits lie in their business, but are wrong. Your white widgets might have been your most profitable item last year – that doesn’t mean they are this year, if the cost of your raw materials or staff has crept up.

Or perhaps no one has ever calculated how much this product or service really costs to deliver, once you look beyond headline costs.


The result is that you pour your time and energy into areas which do little for your business. They may even cost you money to deliver!
Do you know where the profit lies in your business?

Being able to answer this accurately is the key to sustainable growth.
If you know which of your products and service is delivering profit – not just income – you can focus on them. Then take your loss-making projects, and either work to make them more profitable, or if that’s not possible, drop them.

You’ll be making more money immediately.

Conduct this exercise regularly, because business conditions change all the time.
And keep your eye on the prize. Would you rather run a £1 million company that was profitable, or a £5 million company that was not?

To really grow, focus on profit, not on turnover.


Garry Mumford is author of the free guide, The 5-Step Process To Get Your Customers to Pay on Time, Every Time. He is founder and Director of Insight Associates, which since 1992 has been providing owner managed businesses with the financial insight essential for development and growth.
 

Tuesday, May 10, 2016

The Danger of Direct Debits


Several years ago, a regional UK newspaper suffering a sharp drop in readership undertook a complete review of its finances.

To the management’s horror, they discovered that they had been paying several stringers and freelancers a monthly retainer, even though they hadn’t filed a story in over 30 years (!).

Yet in three decades, no one had noticed.

As this horror story shows, putting payments on autopilot is a double-edged sword. On the one hand, it simplifies your expenses. But on the other hand, when it’s not managed properly, it can cause an incredible waste of money and contribute to serious cashflow problems.

As your business grows, you may well set up various forms of payments through direct debits – everything from rent, utilities and insurance to trade paper subscriptions and so on.

These direct debits might have been set up by various people at different times, so it’s not uncommon for a business to be uncertain about exactly what it is paying out.

Even worse, even if the payments are warranted, what seemed like a good deal several years ago may be expensive now. But with direct debits, payments can continue for years before anyone reviews the price you’re paying.

The biggest obstacle to getting these payments under control is simple inertia – “we’ve always done it this way”. But if you are looking to grow your business, it’s important to manage your accounts more proactively.

Start by regularly auditing all your direct debits. Draw up a comprehensive list of what’s going out and what on. Always ask yourself whether this is something you still need in your business. In many cases it’s an expenditure which was important in your early days, but has become much less relevant over time.

Once you’ve sorted out the waste, look at your direct debits and see if you can get these products or services cheaper another way. Many businesses stick with the same supplier for things such as utilities, but if you spend a little time browsing the market, you might be able to get it cheaper elsewhere.

These savings may be small on their own, but like the expenses, they can add up pretty quickly.

If you find yourself wading through a huge amount of outdated direct debits, it is a sign that your accounts are in pretty bad shape. Your business will find it hard to grow to its full potential and make maximum profit if your expenses are shrouded in mystery – and if you are regularly overpaying for products and services.

So make this an annual exercise!
 
Not quite sure what your own business is spending its money on? Want help sorting out your accounts? Get in touch and let’s talk. Not only will you see exactly where you can save money, we’ll put in place processes to make sure there is never any confusion again.

Garry Mumford is author of the free guide, The 5-Step Process To Get Your Customers to Pay on Time, Every Time. He is founder and Director of Insight Associates, which since 1992 has been providing owner managed businesses with the financial insight essential for development and growth.
 

 


Friday, May 06, 2016

How to Control Staff Expenses


According to one recent survey, expense fraud is costing British businesses £100 million a year.

Now, far be it from me to accuse anyone of fraud. But the fact is that it’s easy to lose control of staff expenses even if there is nothing illegal going on.

One business owner I worked with recently was shocked to discover that staff expenses had doubled over 24 months.

The CEO, who was very trusting – some might say na├»ve – did not oversee expenses, and it wasn’t until a new office manager queried why staff expenses were so high that the scale of the problem truly hit home.

It turned out that key members of staff had access to a company credit card. Since there were no written guidelines about what they could claim, they took a broad view, for example charging for a weekly meal for staff. As nothing they claimed was ever challenged, they never thought twice, until their expenses ballooned out of control.

It’s human nature; if we’re given access to a company credit card, we’re likely to be much less careful than if we have to spend our own money.

So how can you keep a firm lid on staff expenses?

The key is to lay down firm ground rules about what staff are allowed to claim, in writing. Most are honest and will stay within the guidelines they are given.

Where possible, avoid giving staff access to a company credit card. It is much harder to reject expenses once they’ve already been charged to the card!

A much better approach is to make staff pay expenses from their own pocket and claim back with an expenses request. Not only are people naturally more careful when the money initially comes out of their own account, it will also be easier for you to refuse payments that seem excessive or unwarranted.

Whether staff are charging expenses to a company card or claiming back later, review their expense claims very frequently – at least once a month. It is difficult to dispute a claim for lunch two months after the fact, when no one can remember the exact circumstances.

Regular reviews of staff expenses will make your team much more conscious of what they’re charging to the company. It will also make it easier for you to see if you’re spending more than you have to.

Challenging individual members of staff about their expenses can feel awkward, there’s no doubt about it. Even so, it’s very important. This is one area which is ripe for abuse and overspending, and getting a grip on staff expenses can be extremely important in managing your overall cashflow.

If this is an area where you need help then get in touch.
 
Garry Mumford is author of the free guide, The 5-Step Process To Get Your Customers to Pay on Time, Every Time. He is founder and Director of Insight Associates, which since 1992 has been providing owner managed businesses with the financial insight essential for development and growth.
 
 
 

Insight Associates, Insight House, Riverside Business Park, Stoney Common Road, Stansted Mountfitchet, Essex, CM24 8PL, UK
Tel: +44 (0)1279 647447 Fax: +44 (0)1279 814512
Insight Associates is a trading name of Financial Catalysts Limited. Registered in England and Wales Number: 5670047. Registered Office as above. Disclaimer | Cookies