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?

Thursday, August 17, 2017

When to spend your business’s spare cash

When Thelma and I were first married, we were both earning good salaries. We put some money aside each month, and soon we were able to move from our maisonette straight into a big family house. 

We missed out the stepping stone of buying a smaller house first, and it stretched us financially. But we felt confident we could do it.  

We were both in our 20s, and the alternative was to spend on amazing holidays, eating out regularly and partying. It would have been fun, but we preferred to take a long-term view.

I sometimes think about the choices we made then when I’m talking to clients about what they should do with any spare cash they have in their business. If you’re profitable, it’s a decision you’ll have to take sooner or later. 

The choice is whether to take all or some of it out of the business to spend on yourself and your family, or leave it all in the business and invest it right back in. 

After a good year, it can be tempting to take out money out of your business to use personally – and that’s not necessarily the wrong choice. Perhaps you need to take money out of the business to move house because of a growing family. Or do up your home – often a wise investment. Everybody has important priorities.

But you should never, ever do it without first gaining a proper understanding of what funding your business will need over the next few years. It would be a terrible mistake to drain your business of money it needs to grow (and make you even more money….). 

“Spare” cash must really be spare – not money your business needs.

The key is good financial planning. If you know where business is heading and what kind of investment you are going to need to get it there, what to do with your spare cash will be decided for you. 

There is another argument for leaving the money in your business. Not only will leaving money in place make the company stronger – it will make it look stronger, too, when customers or suppliers do credit checks. 

Credit companies want to see the value of the business increasing, and that means they want to see cash and resources growing. If you take out all your profit, from a financial point of view it’ll be as if the company hasn’t made any progress from one year to the next. 

In a personal context, everyone agrees it’s better to put some money aside if possible. It’s the same for your business. You will be more comfortable knowing that there is some cash in the bank to cover your business in the case of emergency, or to take advantage of opportunities that arise. 

So try and act strategically. 

It was certainly the right approach with our house, all those years ago. The temptation to spend the money on the ‘here and now’ was massive, but 30 years down the line, our investment paid off. We’re still in the same house.

And with the kids having flown the nest we’ve now got some spare cash again. 

If you want help determining what kind of cash your business will need to grow over the next few years, let’s talk. We can help you set clear goals for your business, and create a realistic budget to achieve them. 

You will know exactly how much money you can take out of the business for yourself and for your family, and how much you need to leave in your business to make sure it grows…

Having your financial cake – and eating it too

I know a business which lost 60% of its turnover in a year. It sounds calamitous, but it’d been running very profitably for 15 years, and most of the value it had built up was still there as cash.

The owner had never had to make any big investments in his personal life, so he just paid himself a salary – a perfectly decent one, but not large. All the ‘super-profits’ which his business was making over all those years were just left sitting in the company. 

If and when he comes to sell it, its value will be significant – despite the recent downturn in the business’s fortunes.

Keeping that much money in your business isn’t a route I’d recommend to everyone. But it does illustrate the choice you have, if you are intending to exit your business one day.

You can have the cash now, as you’re building the business; or you can have the cash later, when you sell it. You can’t have both.

It’s perfectly reasonable to want the cash now, and pay yourself a massive salary or dividends each year. It won’t necessarily kill your business: A successful company will keep on creating value.

But you have to remember that any cash you take out now won’t be there when you come to sell it, so the business will be worth less at that stage. The value that the business has created over the full term will be more or less the same, it’s just that you’ll have taken some of that value out early. 

If you were relying on a humungous payday when you sell your company to fund your retirement, that won’t happen.

If, on the other hand, you want that final sale to be as large as possible, it’s better to take a smaller salary as you’re growing the business. Many people take very modest salaries when they’re starting up, while later their pay may be more in line with what they’d expect as an employee. (Perhaps a well-paid employee…)

Anything above that might be called super-earnings.

When I have conversations with clients thinking about taking super-earnings, I try and make sure they have solid reasons. What are they planning to do with the extra money? 

There’s nothing wrong with deciding to benefit from your business’s extra cash as you go along. But you have to remember: there will be consequences when you to come to sell.
It all depends on your long-term priorities and strategy (and of course if you have several owners all with different strategies, it will be an extremely complex decision!). 

The million-dollar questions are: 
     What’s your big plan? 
     What do you really want out of your business, now and in the future? 
     How much value do you need in your business, when you sell it?

Just remember, you can’t have your cake and eat it too.

If you would like help figuring out the long-term plan for your business, and ensuring that it fits your financial needs, hit ‘reply’ and let’s talk.

A tale of two purchases

Recently I mentioned that companies need to be very agile because, in our fast-paced society, opportunities can present themselves very suddenly. 

Here’s a tale of two purchases I was recently involved in.

In the first case, the competitor of a client of ours went into administration, and was looking for a buyer. In cases like that, the sale is likely to happen very fast.

Our client understood that this was a brilliant opportunity to make a good purchase at a good price. 

It was a big decision, but they had decent cash reserves, and would only be risking 20%. 
They were able to act quickly and secure the deal they wanted.

In the second case, I saw a similar story from the other side. This time, it was one of our clients that was looking to sell off part of their own business. 

I was brokering a deal with a larger competitor, a company which was substantially indebted. And that meant that when they went to the bank to borrow the money they needed, the bank said no – and the deal was off.

Why was one company able to take advantage of the opportunity which fell into its lap, while the other company was not?

Simple. The former had spare cash, the latter didn’t. 

It sounds obvious, but just like you need savings in your private life, your business needs savings too.

It can be crucial in exploiting all kinds of opportunities – not just buying companies. There might be a chance to go into a new market for instance, or buy stock at a discounted price.

And if it’s not an opportunity which comes your way but a threat or a disaster, that cash can be the cushion in your system. You need to put money away for that rainy day. 

Now, you may be thinking: “But we don’t have any spare cash!” or (if you’re the business owner), “Any spare cash we have is going straight into my pocket…..”

It’s important to realise that having cash doesn’t necessarily mean having money in the bank. Cash can also mean arranging ready access to credit lines. 

That credit doesn’t have to come from a bank or whoever’s financing your business. It could be from, say, factoring or crowd funding. But wherever it comes from, you should make sure it’s available for when you need it. 

If you already have access to debt (hopefully for a good reason, to invest in your company’s future – not to prop it up when it fails!), keep some powder dry. So if you really need a £0.5m facility, get double that, so you can have some room to manoeuvre when opportunities present themselves.

I’ve seen too many owners think that because their business is doing well they don’t need to think about putting aside spare cash. But of course it’s much easier to set up a credit line when you're thriving, rather than rushing to the bank at the last minute, cap-in-hand. 

Having the credit doesn’t mean you have to use the money. It’s just good financial management to have access to cash when you really need it.

If that’s something you’d like in place let’s talk. Whether you already have spare cash and need to work out the best thing to do with it, or whether you want to manage your finances better so that spare cash becomes available, we’d be delighted to help.

Thursday, July 20, 2017

The Age of Immediacy

It’s been an amazing couple of weeks. As a couple of eagle-eyed readers who know me personally noted after my last email, I’ve just returned from holiday.

My last decent break was about 10 years ago, when I went with the family for 3½ weeks to visit friends in Australia. This time, my wife Thelma and I conducted a ‘Great North Tour’ right here in England. It was closer to home, but just as rewarding.

Highlights included two visits to Beamish, an open-air recreation of a real, working Victorian town, complete with shops, houses and colliery, and a visit to Lindisfarne, also known as the ‘Holy Island’. That’s a place just steeped in ancient wisdoms, with the ruins of a monastery that dates back 1,400 years. My wife, who’s into alternative healing and spirituality, felt a real connection.

And I felt a real connection when we ended our tour visiting Talyllyn Railway in Wales, where I’m the railway CFO. For a committed railway buff like me that was one of the holiday’s biggest highlights!

It’s been very relaxing and a complete change of pace from my normal, hectic daily routine, running a thriving business.

What struck us again and again during this very historically-themed holiday is just how busy we all are compared to the relatively sedate pace of life experienced by most people historically.

I’m not just talking about the monks at Holy Island, but even the Victorians of Beamish. They may have thought that their life was unbelievably fast-paced following the Industrial Revolution, but compared to 2017, it really wasn’t. News could still take time to travel. It could still take days to get hold of someone. Most business was probably still conducted quite locally.

Even the 1980s were slow compared to today, without the Internet, mobile phones and 24-hour cable news.

This is the age of immediacy, and for business owners, this means that we are under an unprecedented amount of pressure to be on-the-ball.

Market conditions can change at the blink of an eye. Your company’s financial picture, your customers and your suppliers can all change radically without much warning. It is taken for granted that we are always available, answering messages immediately and taking important decisions at short notice (which explains why so many business owners find it difficult to take a real holiday…).

This means that we can’t run our businesses in the laissez-faire manner business owners might have been able to get away with several decades ago. We must be far more agile.

We need the right information at our fingertips. For example, in the past it might have been enough to have annual accounts once a year, but now our financial information has to be almost continuously updated. We need to know our exact financial position at all times.

We need to have the right systems in place so we can avoid threats and take advantage of opportunities when they appear out of the blue. It will be much more difficult to change tack if the exchange rate suddenly changes… or buy a competitor quickly… if you’re not sure what your costs really are, what your financial position really is, or what your long-term strategy is.

We need to build businesses that take strategic, well-thought decisions – because no one has time for mistakes any more.

That is exactly what we create for our clients by giving them top-notch financial management. With clear financial information and great financial planning, it becomes much easier to steer your company through these demanding times.

So if you feel that your financial management is holding you back then let’s chat.

It might take me a little longer than usual to get back to you as I'm just back from holiday - but let's face it, you'll still hear back from me within an hour or two. All par for the course in our fast-moving world...

Wednesday, July 19, 2017

Don’t mention the war

“Don’t mention the war!”

It’s a sentence that any Brit of a certain generation (mine) will immediately recognise – and chortle at. 

It comes from the classic episode of Fawlty Towers, where hotel owner Basil is warned not to mention the war to his German guests – and of course, can’t help hinting at it at every opportunity.

You can watch the classic clip here:

The point, of course, is that sometimes you just can’t help saying the very worst thing… You may even feel a compulsion to do so.

I was thinking about that recently, after writing my last few emails about how to raise your prices.

Because there’s a bit of a paradox at play here.

You see, if you are determined to charge what you’re worth, price is the very last thing you should discuss with potential clients. In fact, even if you’re not ready to raise your prices yet, you need to move the conversation away from price – right now.

For many businesses, pricing is front and centre of their marketing. “Best value-for-money”…. “Reasonably priced”….. “No one will beat us on price”.

They believe (mistakenly) that price differentiates them.

The problem is that when you put so much emphasis on price, that’s exactly what your customers will focus on, too. They’ll start asking you to justify what you’re charging and try and bargain you down.

You can’t win that way.  No matter what you’re charging, there will always be someone cheaper, who seems more reasonable or who seems to offer more for less. Often they’re just a click away online.

Focusing on price makes it virtually impossible to raise your prices, because as soon as you do, you need to explain yourself.

So what should you focus on instead? 

The quality of your service and the value you provide.

If you can make your prospects believe that you will solve their biggest problems and improve their lives, you’ll find they will be much less price-sensitive than they would otherwise.

Take Rolex for example. You’ll never see pricing mentioned on their website. All the focus is on the quality of the watches and the feeling of luxury you’ll get when you put on one of those beauties. People will pay enormous amounts for that.

But you don’t have to be a luxury brand with very wealthy customers for this approach to work.

I’m heavily involved in Talyllyn Railway, a historic narrow-gauge railway in the Welsh countryside. Many of the people who ride the train are young families, who are comparing our price to those of other local tourist attractions.

By that count, we are certainly not the cheapest day out. But the railway is loads of fun and can provide hours of entertainment for young children.

Parents will pay quite a bit to keep their children amused! 

Raising your prices, therefore, is as much a marketing challenge as anything else. 

Make sure you are providing a quality service for the top of the market – not the bottom, where price really does matter – and then talk about the incredible value that you provide.

Just don’t mention the war cost….

Friday, July 14, 2017

Who's Afraid of Losing Customers

Last month, my sister-in-law was looking for some workmen to move a partition wall in her cottage.

After getting her first quote, she phoned my wife in frustration.

“You’ll never guess what they quoted…. I don’t know how they could justify asking so much money for such a small job!”

Here’s what I guess probably happened.

The tradesman didn’t really want the job, which was probably more trouble than it was worth for him.

So he deliberately priced himself very high, to make sure that if he did get the job, it would be really profitable. And if he didn’t get the job, it was a lucky escape.

For him it was win-win.

There’s a lesson in there for the rest of us business owners, no matter what type of business we run.

You must be prepared to lose prospects – and even existing clients – if they are not worth your while.

It’s not as easy as it sounds. Over the past couple of weeks, I’ve sent out several emails about how much more profitable you would be, if you only raised your prices, even by a small amount.

Whenever I mention this, the next question always tends to be: “But what about the clients we’d lose…..?”

The fear is that raising prices will harm you. It’s usually misplaced, though.

Every single business has at least a small number of customers it would be better off without. These are the customers who are worth least to you, and who in most cases are not actually profitable once you’ve actually looked into the figures.

Think about the legacy clients you have who are still paying what you quoted them several years back – although your pricing structure has completely changed for new clients……

The clients who take up inordinate amounts of your time, time which you are not fully compensated for…..

Clients for whom you chronically over-deliver, for whatever reason - cutting away your margins.

The truth is that these are usually the clients that you lose when you raise your prices.

In many cases, the honour of having these companies as clients is actually costing you money (!). In other cases, they are taking up valuable time and effort that could be put to better use, servicing other, more profitable clients or developing your own business.

Raising prices is actually a very good way to get rid of this unprofitable underbelly of your business.

The additional revenue you bring in from the clients who do stay with you should be more than enough to compensate for those who go. I actually can’t think of any business we’ve worked with which has raised their prices, and lost out financially – even when they have lost clients.

Like I said last week, if you are worried, you don’t need to raise prices across the board to start with. Test the waters by raising prices for those clients you wouldn’t mind getting rid of, or for prospects that you are actually not keen on.

You may find that once you’re charging them more, they become more palatable :)

And if you would like help figuring out the correct pricing for your products or services, and raising prices in a sensible way, let’s talk.  We’d be delighted to help you become more profitable.

Thursday, July 13, 2017

A small tweak that gets you big results

A business owner I know was struggling with his time management.

He felt that his days were taken up with long, dreary meetings, leaving him with very little time for productive work. Sometimes he held so many back-to-back meetings that he didn’t have time to eat, catch his breath or really absorb anything that had been discussed.

It felt exhausting and unsustainable.

So a couple of years ago, he instituted two changes.

First of all, he decided that he wasn’t going to hold any meetings on a Thursday. Ever. And second of all, he stopped allowing people to book 60-minute meetings with him. From now on, the longest meeting he would hold would be 45 minutes.

The result? He now has valuable time to work uninterruptedly, with a clear head, and when he does have back-to-back meetings, he has some breathing space in between. He is much more productive and relaxed at work.

The changes he made were really very tiny, in the scheme of things. But they had out-of-proportion results.

In business, we very often think that in order to have a big impact, we need to make big changes to the way we work. That is not always true.

Often, small changes can be revolutionary.

According to a 2009 study, when hospitals used a checklist before surgery, the death rate dropped by 40%.

That same year, HMRC managed to significantly increase the overdue taxes they collected compared to the previous year, simply by adding one line to the letter they sent out, telling recipients that most other people were paying their taxes. (That’s social pressure for you.)

And we know from our own experience that when you make it easy for employees to record their expenses, for example through a mobile app, your accounts become more accurate.

It’s a similar story when it comes to changing what you charge.

Raising your prices is by far the quickest way to become more profitable. Yet many companies resist, preferring to spend months and years trying to find ways to cut their costs, which is a much more difficult route.

The reason? They imagine that to seriously impact their profitability, they need to raise their prices by 20%, 30%, 40%, and are afraid of a rebellion from their customers.

It’s not true, though.

Very often, even a tiny change in your prices will have an out-of-proportion impact on your profitability.

Let’s do the maths together.

Say that you sold a £100 product, of which £10 was profit.

If you raised your prices by just 5%, each sale would now bring in £105.

For the consumer, that’s just a tiny increase. They probably wouldn’t even notice it.

But your profits have jumped from £10 to £15 – that is, a 50% increase. Your expenses have not increased at all, so every penny of that extra £5 is pure profit.

Now imagine you applied that across the board. A 50% jump in profits, year-on-year, wouldn’t look too bad in your year-end accounts, would it?

Now, obviously the ‘real’ maths, when applied to your business, will be more complex than that. But the principle remains the same: You do not have to raise your prices by a frightening amount in order to significantly impact your bottom line. A small rise will make a big difference.

If you’re still afraid, why not test a price rise with your least profitable customer, or one product line. See what happens….

And of course, if you would like help determining the best pricing structure for your business, let's talk. Making your business more profitable is what we are all about.

Wednesday, July 12, 2017

Is Your Pricing Wrong?

A few weeks ago my wife and I spent a few days in Tuscany, visiting our friend Heather, who had recently moved from the UK to a very old Italian house, high up in the mountains.

The break was unlike anything we would normally do, and we loved it. We spent time walking, visiting the ancient walled city of Lucca and generally enjoying the few days of slowing down. We drank too much (very inexpensive) wine and took in the wonderful environment.

Of course we will enjoy the memories for years to come. But now that I’m back in the work context, I can’t help thinking about a slightly different part of my holiday – the experience of booking it.

The list of possible flights on was very long – and the pricing was intricate. Not only was every airline priced differently depending on whether they were budget or premium, but each day, each flight and of course each class was priced differently, too.

Just to make things even more difficult, many of these prices changed from minute to minute.

It took a while to work out the best option. Naturally I was annoyed to discover that some of the lower prices that were available when I first started looking had disappeared by the time I booked…

Airline pricing is notoriously complex. They broadly determine what they are going to charge based on how they are positioned in the market, what their competition is charging, what the market will bear and their own costs.

Then, that is fine-tuned with an algorithm that – naturally - is designed to ensure that they collect the maximum revenue possible for each flight.

I won’t go into the whole system here, because it will make your head spin. Suffice to say that there are multiple fare levels (often for the same seat…..) and the algorithm changes the pricing in real-time, depending on how sales are going in each category.

It is all very strategic.

How many businesses can say that their own prices are as carefully calculated?

Some certainly can.

But here’s what I see more often: Businesses that set their prices randomly several years ago, based on their owner’s gut instinct or because that was all they dared charge at the time.

Later on, they try to adjust their prices, but that original price point is always their anchor.

So for example, you might raise prices by 15%, which seems like an enormous hike. The problem is that if your starting point was not thought out properly, your pricing still won’t make any sense.

You might still not be charging as much as your competitors…. Your pricing might still not reflect the full value you deliver…. Or you may still be placing yourself at the lower or middle end of the market, whilst in reality you’d be better off right at the top.

This hobbles your business, completely unnecessarily.

So here’s a useful exercise. 

Sit down and calculate what your prices should be – entirely from scratch, without referencing in any way what your prices are at the moment. Pretend, if necessary, that you’re just starting your business again.

Think about all the same factors as those airlines do – positioning, your own costs, your market and your competition - and determine what the right price really is for your product or service.

You will probably be shocked by the difference between what you should be charging, and what you actually are.

Like all financial matters, your pricing should be conscious, deliberate and strategic – not just be allowed to roll along with a bit of tinkering here and there.

If pricing is an issue for your company, let’s talk. We can help ensure that you are charging correctly, so that you bring in the income that you need and that you deserve.

The last thing you want to do is to get stuck with historic prices you don’t understand.

Those of you who know me will be shocked that I’ve written about planes and not trains. So rest assured, I’ve got a blog planned about pricing and trains as well :)

Tuesday, July 11, 2017

Would your accountant notice this?

“Dennis” was practically bankrupt when I first met him.

Not personally, that is, but his company.

It was a tragic story.

The company he founded, in the health industry, was booming. But somehow, the in-house bookkeeper had miscalculated the amount of VAT they had to put aside each month, and saved only a fraction of the funds they needed to pay their quarterly bill.

They got in trouble with one bill… And while that was being sorted out, with the next one as well.

Before they knew it, they had built up a huge debt to HMRC which was going to be very difficult to repay.

That was when they approached us to sort out their finances. But before we got started, I had one, incredulous, question: “Didn’t your accountant pick up on the problem!?”

It turns out the answer was no.

The company’s accountant never had the chance to spot the issue, because he only saw their accounts once a year.  He simply wasn’t close enough to the business to notice what was going on and to challenge the figures the bookkeeper was producing.

By the time he saw the books, it was too late.

It’s a similar story in practically every distressed business we’ve ever worked with.

Regular as clockwork, it turns out that there was no one intimately involved with the business who really understood their finances. There was no one keeping a close eye on what was going on financially, who could identify mistakes and understand their consequences.

Many business owners expect their accountant to be that person.

But like in the healthcare business I just told you about, your accountant is often not around the business enough to notice when things go wrong, and not proactive enough to ask the right questions about how the business is doing.

So take a moment, and think about the accountant your business works with. Then ask yourself these questions:

• “Are they doing enough for us?”
• “Do they know my business well enough?”
• “How quickly would they notice, if something went terribly wrong?”

If the answer to the first two questions is “No”, and the answer to the third question is “not quickly enough”, you need to rethink.

If you want your business to grow successfully, it is absolutely crucial that you have someone on board who is proactively managing the finances – particularly if you, like so many business owners, are actually not that comfortable with numbers.

It’s the only way to avoid financial disasters. And the best way I know to make sure you’re making smart financial decisions.

One option is to ask your accountant to be more proactive. You’ll need to be very clear on exactly what additional services you want from them.

But be warned, this may not be possible to achieve. For many accountants, this level of involvement in a business is not something they have the time or willingness to offer.

They are focused on producing your annual accounts and filing your taxes (basic things your business needs) rather than on giving you advice about where to save money, how to budget and financial planning (the things you, as business owner, really want).

It’s also possible to switch accountants, finding a firm that is genuinely proactive. But this can be difficult to find, for the same reasons your current accountant probably isn’t proactive enough.

A third option is to talk to us, here at Insight Associates. As an outsourced finance department – not “just” accountants - managing your finances proactively and responsibly is what our business is about.

On our watch, it would be impossible for a mistake like the VAT example to ever happen, because we closely monitor every financial transaction on your behalf. If something seems out of place, we will know immediately – because we will get to know your business intimately.

This also allows us to offer you the very best financial advice, planning and guidance, entirely bespoke to your company and your situation.

You can be confident you are making sound financial decisions, based on real data and information, instead of operating on gut instinct or incorrect figures.

You will be entirely in control of the financial side of your business, perhaps for the first time.

If that’s something you’re interested in, let’s talk. Your finances are the last thing you want to leave to chance.

Monday, July 10, 2017

How to find a proactive accountant

The list of mythical creatures is long.

There’s the Yeti, the Loch Ness Monster and Pegasus. Then there's entire species, like dragons, fairies and fairy godmothers, mermaids, unicorns and leprechauns. The Harry Potter universe has helped basilisks, werewolves and house elves shoot up in popularity in the last few years.

But there’s one more that you won’t find on many lists.

That’s the proactive accountant.

Oh, they do exist, of course. There are rare but reliable sightings up and down the country. And every accountant worth his or her salt claims to be a “proactive” accountant. Many even boast about being one on their website.

And yet, “I wish I could find a more proactive accountant” is the clarion call of practically every business owner I’ve ever met…….

So why are they so elusive?

I’ll stop being facetious for a minute and give you a serious answer.

The problem is that for the most part “proactive” and “accountant” is a contradiction in terms.

The basic job of the accountant is to provide the statutory information you have to produce for Companies House. They will put together your annual accounts and make sure your taxes are filed correctly and on time.

These are all important things that need to get done for your business.

But they won’t help you run it any more efficiently or profitably – which is what business owners are really asking for when they wish for a “more proactive accountant”.

What they really want is an accountant who volunteers suggestions about how to save money and budget properly, and works with them to manage their finances more efficiently and plan their financial future. They also want deep insights into their true financial position.

This is beyond the remit of most accountants.

It’s also beyond their capabilities – not because they don’t have the knowledge (of course they do), but because they are simply not involved enough in your business to be able to offer that kind of tailored insight and guidance.

When they look at your figures once a quarter or annually, they don’t have a deep enough understanding of what you do, the market you operate in and the day-to-day financial challenges you face.

Of course, there are excellent accountants out there who do extend these services. They are rare.

Others think they are being proactive by offering advice on how to save a bit of tax, but that only scratches the surface of what most fast-growing businesses really need, in terms of financial advice.

If you’re looking for a genuinely proactive accountant, then, it’s going to be tough.

But the good news is that they do exist.

They’re simply called finance directors. (Hiding in plain sight - the ultimate disguise…….)

Finance directors make it their business to delve into every aspect of your finances and add value – offering bespoke advice about how to improve your financial position, and make great financial decisions.

In many ways they build on the valuable work that your accountants do, interpreting the figures they produce and using them to plan ahead, keeping you on firm financial footing.

These less-than-mythical creatures are generally spotted in corporates.

But if that’s something you really want, you can have it, too.

You see, we offer the exact same service to smaller companies turning over between £1 million and £10 million.

After all, why shouldn’t you have a genuinely proactive accountant? Why should all the skills, tools and insights offered by finance directors be restricted to much larger companies, when it’s exactly what you need too?

If you’ve recently lamented that you need a more proactive accountant, call or email me and let's talk.

We’re not “only” accountants – we’re finance directors. And we’ll get you the proactive financial management your company deserves.

Friday, July 07, 2017

Kodaks Last Moment

On January 19, 2012, camera company Kodak filed for bankruptcy.

It was a failure of epic, unimaginable proportions.

For decades, Kodak had completely dominated the photography market.

In the mid-1970s, it sold 90 per cent of the photographic film in the US and 85 per cent of the cameras. As late as 1996, it was ranked the fourth most valuable brand in America – behind only Disney, Coca Cola and McDonalds.

Its advertising was so successful that the phrase ‘Kodak moment’ had become synonymous with a moment so meaningful, it was worth capturing on film.

So how did Kodak fall so far, so fast?

Simple. Even though it had invented digital photography (as early as 1975), it was too slow to recognise that this would render film photography obsolete.

This was partially a conscious choice: It didn’t want to kill its own core product. It was partially a failure of imagination: Kodak’s leaders couldn’t believe people would give up printing pictures and did not foresee that they would prefer the convenience of digital.

Their market revolutionised without them.

Unfortunately, if it can happen to a company the size of Kodak, it can happen to anyone. It’s crucial you ask yourself today: Could this happen to us, too?

Recently I wrote about how political and economic instability is challenging companies. Swift technological change is another factor which is dramatically changing entire industries.

For example, the Internet has upended many companies, because it has allowed new competitors to emerge with cheaper business models. It has also allowed sellers to reach their customers directly without any middlemen.

Think of how newspaper advertising has been decimated by the ability to advertise much more cheaply on social media. Consider how websites allowing consumers to quickly self-publish has revolutionised the book publishing industry.

I’ve seen first-hand how companies in very traditional industries with several big players are thrown into disarray when small start-ups start to invade their space. The formerly dominant companies end up playing catch-up.

It changes everything for suppliers to the industry, too. They need to rethink who their target market really is, and what they’re delivering to them.

One company I know lost one of its largest customers overnight, when that customer decided to seek a cheaper supplier. The reason? That customer was coming under financial pressure because its own market was changing. The company I know - which was taken completely by surprise - paid the price.

As the business owner, you need to be intensely aware of what is going on in your market, so you can see change coming.

All too often, I see business owners who are so caught up in the day-to-day running of their business that they have lost sight of the bigger picture. When change does happen – and usually this happens very fast - they are taken unawares.

Take the time to work on what’s important, not just what’s urgent. As a business leader, you need thinking time, so you can just sit and watch, and identify trends.

The bottom line is: The world is changing fast. Few businesses are immune.

Are you ready?

Wednesday, May 17, 2017

Addicted to debt?

One of my friends likes to have a drink most evenings. A glass of wine with dinner or a pint in the pub is just a nice way to unwind with family and friends. But every year, there’s one exception. He always commits himself to Dry January, and for that month, he won’t even enter a pub.

Why does he do it? Because he likes to prove to himself that he doesn’t actually need a drink. That he can quit, cold-turkey, if he wants to. It proves he’s not an alcoholic.

Business debt is just like alcohol. Great in the right circumstances, but you must be sure that you’re not relying on it to get by. 

Unfortunately, too many businesses do rely on it.

These businesses may even have forgotten why they originally extended their overdraft or started using invoice financing.

Since (unlike loans) these have no repayment schedules, they have never thought about how they were going to meet their obligations.

On the contrary. They continue to use these facilities until they simply become a fact of business life….. A given, not an exception…. Something they don’t even think about as unusual any more.

They use these facilities freely, and often for unsuitable things, for example to purchase large pieces of machinery. 

They’re addicted.

But this is not right. These type of continuing facilities are only designed for emergencies and are not a long-term solution to any problem. They should not be used to fund long-term investments such as assets.

Borrowing must never be seen as something inevitable, and it must never become a habit. How healthy are your finances really, if that is the case? And what happens if your overdraft gets reduced or even removed?

If you have no firm plan in place for how you’re going to pay off new debt, you shouldn’t be getting into it.

This is extremely important because if you’re taking on debt in order to cover a financial emergency or gaps in your cash flow, it’s likely that you’re not great at managing your money in the first place (even if you’ve been brilliant at building up your business!). 

This makes it more likely that an overdraft will become a permanent feature in your business, leading you down that rabbit hole of debt.

If your business has a nasty debt habit that you need help kicking, please get in touch. We’ll make sure you go “dry”, putting in place measures to pay off your debt – and ensuring that your finances are managed so well, you’ll never have to fall back on borrowing again.

Monday, May 15, 2017

What do I need on my Invoice? Essential Information To Get Paid First.

Question: What have fast cars, beautiful women and invoices got in common?

Answer: If they’re not handled correctly you won’t get very far!

You’d be amazed how many companies do a great job winning contracts and delivering products but let themselves down when it comes to the invoicing.

So, here’s our top 3 invoice essentials that will ensure you get paid first.

1. The devils in the detail
  • The obvious ones like business name, trading name, address, company registration number, registered office address and contact telephone numbers. Top Tip: Your company letterhead is a great starting place for your invoice template.
  • If you’re VAT registered, you must show your VAT registration number and the VAT rate being charged. Show the date and have a unique invoice number. It should show the Net total, VAT total and Grand Total.
  • Have a clear description of what the expenditure was for and include references useful to your customer such as order numbers or part numbers. Make it easy for them to identify what you are charging them for.
  • Show your payment terms – 30 days, immediately upon presentation, 60 days
2.  Make it easy peasey lemon squeezey
  • Make it REALLY easy to pay you. It’s amazing how many companies don’t put their bank details on their invoice. Include as many ways to pay you as possible, BACS is one of the quickest and easiest but make sure you show your correct bank account. Top Tip: If you change your bank it’s always good to send an announcement around to those companies that pay you regularly, they may not notice a subtle change to a regular invoice and may try to pay into an old account.
  • Some companies show details of what you should do if you have queries and perhaps impose a time limit to deal with queries when the product is supplied.
  • Make sure everyone knows your terms and conditions of sale.
3.  Know the Process
  • Take the time and trouble to find out exactly where your invoice should be sent to ensure they are properly processed and go into your customers payables system. Don’t just assume it’s the place the goods or services were supplied. Large corporates are notoriously bad at paying if you don’t follow the system.
If you get his right, you’ll soon reap the rewards of your labour!

Wednesday, May 10, 2017

When Debt Is Good

“What are these three loans for?”

“Oh, we needed them to tide us over. Money just wasn’t coming in fast enough. No big deal.”

I was taking a first look at the accounts of a new client. Their balance sheet wasn’t in great shape, but at first glance there wasn’t anything too disastrous either. Then I noticed the three loans, which had been taken out roughly once a year for the past three years.

It was an immediate alarm bell – and should have been for the client, as well, alerting them that there was a serious problem with their finances. But it wasn’t. 
As we looked closer at their books, we saw that even though they were bringing in a lot of new clients, they had severe cash flow issues. They just weren’t getting paid fast enough to cover their expenses.

Each time, when they thought they were going to run out of money, they used a loan as a stopgap measure, allowing them to continue functioning smoothly for another few months. Then the old cash flow issues reasserted themselves and they took out a new loan.

It was a vicious cycle which they had no intention of getting out of, because the loans created the illusion that all was well. In reality, not only were the underlying financial issues still there, but they were burdening themselves with piles of debt.

Recently I’ve been talking about one of the hidden dangers of fast growth, which is that it is very expensive. One way to overcome that is to shorten your cash cycle, as I explained last week.

But sometimes that’s just not enough. There may come a point where you need to finance your growth in other ways, by borrowing money. This could either come from a bank, or (the more modern way of doing things….) peer-to-peer lenders or some other type of loan.This is not inherently a bad thing. Every engine needs oil. 

But there is a big difference between borrowing to grow faster, and borrowing to stop yourself going under.

If you are performing well and are profitable, and want to borrow to give your company the tools that set it up for future success – for example, paying for essential new equipment or larger premises that allow you to process more orders, or putting the right staff in place – that’s great. 

The loan will actively build your business, and the money you’re generating can be used to pay off the debt.

But that can never happen if you're borrowing to try and cover a loss, or cope with financial problems such as cash flow. That’s a sticking plaster solution which can only get you into more trouble, as in the case I told you about earlier.

I do understand why companies take on debt for the wrong reasons.
 When you are growing fast and things feel like they’re moving in the right direction, it’s so tempting to believe that you just need a little bit of cash to help out, and that everything will sort itself out in a few months’ time. Sometimes business owners are so confident in the future of their business that they are even willing to prop it up with a personal loan, which is easier to get.

It could be called an optimistic approach – but it’s misguided. In a few months’ time, chances are that all those recurrent, underlying financial challenges will still be there.The only real solution is to put in place proper financial planning and management. 

That’s what we did for the client I mentioned before. With good cash flow management, they could stop using borrowed cash to plug gaps, and instead use it to improve their position, and even start paying off their debts. 

I compared debt to oil before, but it’s like fire too. Used carelessly it becomes destructive and uncontrollable, but used wisely it can be an extremely useful tool.

If you need to borrow (for wise reasons!) we can help you find competitive funding. But equally, if you think you need a loan “just to tide you over”, we can help you with that too. Just get in touch and let’s talk about how we can get your finances in order – so you never need loans for the wrong reasons again.

Wednesday, May 03, 2017

How Growth Can Kill Your Company

You have worked so hard to build your business up from scratch.

Now, all those late and sleepless nights, all the time away from your family, all those meetings, and all the fights, mistakes and tears – they’re all starting to pay off.

Not only have you just hired the team of your dreams, you’ve just walked out of a meeting with a potential client who could push your business ahead even faster than before – perhaps adding 10% to your revenue single-handedly. That new sports car is looking more likely now…..

It’s a dream come true, right?

Not so fast.

Here’s a little secret which many business owners only recognise when it’s too late.

The moment when your business really takes off is a moment of grave danger. That is when your finances risk spiralling completely out of control – without you even noticing.

Growth is great. But financing growth, especially rapid growth, can bring its own problems. 

Your expenses suddenly multiply: Think of all those new staff members you have to bring on, the additional raw materials you need to pay for, all the new equipment you must invest in, and the new office space you need. It adds up fast.

Your profits? They often they lag behind.

It can really be a case of “be careful what you wished for”, if the result is that you struggle financially – and even put your business in danger – because you’re just not bringing in money fast enough to cover your expenses.

So what to do?

There are, of course, many ways to finance growth – and most people’s first instinct is to make a bee line to their bank manager.

But I want to suggest one different, cheaper way. 

It goes back to the idea I introduced in my last email, of knowing your cash cycle. As I explained last week, a cash cycle is the time it takes for money you spend today on things like raw materials, inventory or staff to come back into your business, when customers pay for your product or service (along with, hopefully, a healthy mark-up!).

To achieve financial stability while you’re growing, it’s vital that you shorten that cash cycle, keeping the gap between when you spend money and when get paid as small as possible, so there’s always cash on hand.

Perhaps the most obvious route is to incentivise your customers to pay you sooner, so that money comes into your account faster.

You can give a small discount if an invoice is paid in full within a short, defined period. 

If you're carrying out a big project it may also be possible to get paid in stages rather than at final delivery, or to get an up-front deposit. That way you are not waiting for the full amount for long, easing your cash flow situation.

You will be surprised how many companies are happy to pay an upfront or staggered fee. (And by the way, if getting clients to pay you on time – let alone early – is a struggle, make sure you’ve downloaded our guide to getting them to pay you faster.)

At the other end of the cash cycle, you can try and keep money that’s in your account there a little longer. Talk to your suppliers about whether you can negotiate longer payment terms. You may have to give something in return – for example, perhaps be more flexible with your delivery times – so think creatively.

And then you can make use of invoice finance (or factoring). Factors take outstanding customer invoices off your hands – for a percentage fee – allowing you to access their value before the customer has paid them.

Of course, in the long-term a profitable business is more likely to generate enough money to fill its cash cycle. So if you have cash flow problems, the first thing is to make sure your business is profitable – it’s surprising how many businesses are happily growing without realising they’re actually losing money. 

But when you shorten your cash cycle enough, your cash flow problems alleviate considerably. Your growth will be a source of pleasure and excitement – not a source of financial stress!

If you’re growing fast but having problems managing your cash, please get in touch. We’d love to help you. 

Thursday, April 27, 2017

Cash Cycle: The Farmer vs the Grocer...Which Are You?

A regular reader of my blogs recently told me I’m always going on about forecasting cash flow. 

I hold my hands up – guilty as charged. I don’t think you can overstate the importance of having a clear view of how much money there is coming in and out of the business for the foreseeable future.

When you are never sure what your financial situation is going to be in a month or two, it’s like living on the edge of a precipice. You never know what’s coming up – and when you’re going to stumble over the edge, and run out of cash. Having to scramble around to pay your bills, worrying about the future of your business and your own income is nobody’s idea of fun.

When you can see ahead far enough, though, you can predict trouble points ahead before they hit you, so that you avoid the financial crises that take up all your time and threaten your business (and sanity….). 

You can also answer vital questions like: 

 “Are we going to have enough money to buy new equipment in June?”

“Will we finally be able to afford a new member of staff next month?”

“How much do we have to invest in training for our staff this summer?”

Being able to plan ahead allows you to manage your business more efficiently, grow faster – and feel firmly in control.

But how far ahead should you forecast? 

Well, that depends :)

The answer is different for each business, and depends on your ‘cash cycle’ – a key metric which goes hand-in-hand with your cash flow, but which most business owners know very little about.

Your cash cycle is the time it takes for a pound you spend today to come back into your business (along with any mark-up). 

Take a company which buys raw materials and turns them into something else in their factory – a process which might take a few weeks. The finished product might sit in stock for another week before a customer comes along and buys it, and then they might pay the invoice two months later. 

If it takes five months, on average, from the moment it buys the raw material to get that invoice paid, that’s its cash cycle. 

The length can vary hugely between businesses. For example, a farmer has to wait months before he sees the money he’s spent on carrot seeds and fertiliser come back to him after harvesting. But the greengrocer who buys those carrots in the market one morning will probably have sold them by the end of the day – one of the shortest cash cycles there is.

You need to be able to see that entire period – whatever it is – to make sure you have enough money to stay afloat until that cash you spent comes back, or you will run into financial difficulties. If your cash flow report doesn’t do that (or if you don’t have one at all), it’s risky.

So now that we’ve cleared that up, how long is your cash cycle? Are you the farmer… or the grocer?

And are you able to forecast your cash flow through that entire period?

The answer has to be “yes” in order to answer all those critical “Will we have enough money?” questions with confidence – and avoid falling over that precipice.

We update our clients’ cash flow forecast every single day, so that they always know exactly where they stand financially, can plan responsibly (with us) and never have to worry about nasty financial surprises. They are in control of their cash – it doesn’t control them.If cash flow is an issue you struggle with,  let’s talk about how we can give you those advantages, too. 

PS. I’ve been having some fun recently producing a series of videos expanding on some of the ideas in my blogs. Yes, accounting and fun can go together :) Check out my latest below which is about the cash cycle…. Like you’ve never seen it before.

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