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 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.

Wednesday, April 26, 2017

No One Will Buy Your Company Without This

Several years ago I was involved in the sale of a business, which involved a very lengthy due diligence process.

Why did it take so long? Because the accountants were desperate to find evidence of financial weakness they could use to push the price down.

They spent weeks examining every financial record in detail, but they couldn’t uncover any ammunition at all.

Eventually the sale went through at the full price, and the buyer asked us to stay on – ‘to keep up the good work’ – as we were responsible for managing this company’s accounts.

But I’m not mentioning this just because it’s nice to recount success stories ;-)No, it’s really because I want to talk about the importance of good governance if you ever want to sell your business. This is no quick-fix solution just before a sale, but more of a long-term investment you need to think about years before.

When I decided to sell my last car, I made sure it had a good deep clean to get it ready. But much more important was the full service history from a main dealer, and the annual MOT certificates showing that the mileage was genuine and that the car had been roadworthy and well-taken care of over several years.

It’s very similar with a business. Just instead of an MOT and service history, you need to show great financial records.

You need to be able to demonstrate you’ve been running a tight ship, with no sinister financial details lurking in the background. That means no personal assets on the balance sheet, no unpaid debts, and no old stock or machinery that should have been sold off….

…No funny numbers to cover up your true financial position, and absolutely no mistakes in your accounts.

Your records need to prove that whenever a third party has looked into your business, you’ve come out smelling of roses. So you need to be ready at all times for an audit report, or a VAT or PAYE inspection, with full records that are easy to access.

Consistency, or your ability to demonstrate that you have delivered strong results year-on-year, is a very important element of all this. Any buyer will want to think they can continue where you’ve left off.

Of course, the other thing any buyer will want is a keen price. And if their due diligence throws up anything even remotely suspect, they’ll be expecting a reduction – assuming they don’t walk away from the deal entirely.

This is crucial if you’re even considering selling your business in the next few years (and equally crucial if you “just” want a company that’s run professionally).

Tuesday, April 25, 2017

Rogue Shareholders

Several years ago I was involved in a sale which almost fell apart, because the company had one shareholder who was dead against the deal.

He didn’t care that he was outnumbered three-to-one. He saw himself as the responsible one, holding out against a short-term deal to make a quick buck.

The others had all been courting this buyer for some time, working towards a sale for a couple of years. But they’d never really talked to the fourth shareholder about their plans.

Perhaps that wasn’t surprising, given that he hadn’t been involved in the business for a number of years. But it was a mistake.

If you have multiple owners in your business, you really need to know – way ahead – what will happen if shareholders have differing views about selling up.

‘Rogue shareholders’ can cause huge problems, sometimes by refusing to sell, and other times by selling to the wrong party – a rival company for example. Or they may just threaten to sell, trying to gain the upper hand in a dispute.

It’s essential that you’re covered by a shareholders’ agreement – and that you draw one up early on.

A shareholder’s agreement is a binding contract between the co-owners of a business, outlining how it’s run, and also what happens if anyone decides to sell their shares (a sort of prenuptial agreement!).

It can control when owners are allowed to sell their shares, who can buy them, and what price will be paid. Some shareholders’ agreements will state that shares can only be sold when an owner retires, goes bankrupt, becomes disabled, gets divorced, or dies.

Others allow more freedom – but still lay down clear processes to follow. 

For example, there’s another company we work with which has two owners, one of whom has decided to retire early, in his 50s, and sell his share of the business.

Because they have a shareholder’s agreement, there is already a defined path to let that happen smoothly.

All the owners of a business want to profit from it. But if you don’t think about exits right from the beginning, disputes will severely damage the very asset you all need to build.

A shareholder’s agreement is just one of the pieces you need in place if you ever intend to sell your business. If you want to get your company ready to sell, please feel free to get in touch and let’s talk about how we can help.

Monday, April 24, 2017

Is Your Business Too Dependent On You?

“It was the most stressful period of my life – I could not believe what they were doing with my business!”

I’ve seen several cases like this former client of mine: Entrepreneurs who are asked to stay on when they sell their business to a new owner.

It always ends badly.

The problem is that the owner has sold too early, when they’re still intimately involved with their company, and when their company depends on their skills and knowledge to function and thrive.

It’s not that they can’t accept suddenly having a boss, it’s that they can’t bear someone else taking decisions about the company they founded.

To sell your business, you need to make yourself irrelevant to it. If you don’t, people aren’t buying the business – they’re buying you.

And let’s face it. That is a substantially less attractive proposition to a prospective buyer than a company that works like clockwork, regardless of whether the former owner is there or not.

It’s also not great for you, either, for the reason outlined above.

The stage where your business is dependent on you, the owner, is called ‘Infancy’.

Michael Gerber, author of the E-Myth, has an interesting idea on how to help your company emerge from that state.

He says that you should try to build a business that you could franchise and replicate.
It doesn’t matter whether you have any interest in franchising per se, it’s simply a way to help you focus on building a business which isn’t dependent on any individual. Instead, you put in place systems and processes which anyone can use and execute.

That way, when the time comes, you can sell the systems and processes, and just step away.

A good example is financial systems, like the ones we put in place. You need to ensure that your company has smooth billing and credit control, outstanding cash management, the right accounting platforms, sensible budgets and risk management in place.

That way, your accounts are managed exactly how you want them to be, and even if your bookkeeper or accountant resigns tomorrow, someone else can pick up exactly where they left off.

Building these systems and processes does not happen overnight. It’s a long-term project, so if you have any ambition to sell your business one day, you need to get started now. (Systems will also help your business run more smoothly, even if you have no intention of ever selling it!)

There was some university research published this year which found that when male entrepreneurs looked at the logo of their company, they experienced the same surge of pride, hope and attachment as a father when he looks at photographs of his children.

No wonder we call the stages of a company ‘infancy’, ‘adolescence’ and ‘maturity’! And no wonder that man I mentioned earlier was so upset when somebody else started taking decisions about his ‘baby’…

If you want help systematising your accounts, get in touch. Even if you’re nowhere near selling your business, this is a crucial step in achieving a more professionally run company.

Friday, April 21, 2017

Thinking of Selling Your Business?

Thinking ahead several years, what’s your long-term plan for your business?

There are many possibilities, of course, but the majority of people are happy owning a ‘lifestyle business’. They’re not really interested in growing their company aggressively. Their main priorities are generating a comfortable income and having flexibility and control over their time.

Others see themselves passing it on to family members when they eventually retire.

Then there are those who plan to sell up some time down the line. They want to build up their business to the point where it is an attractive purchase, make their profit – and then either retire happily on the proceeds, or start the entire exercise again with another company…

If you think that is even a vague possibility, you need to start planning now.

Even if you’re not yet ready for a detailed exit plan, it’s never too early to conjure up a clear idea about where your business will be when you sell.

You see, with that vision in mind, you can systematically build your company the right way, so that when the time is right, you can exit.

If you allow your company to develop more organically, you may find that your company is not attractive to a buyer when you decide it’s time to sell up, and that you have several years of work to do to make it ‘fit for sale’.

Things might take you in a completely differently direction – no-one can predict future, and this isn’t about being rigid in your approach. But like everything in business, you should begin with an end in mind.

So visualise what your business will look like when you sell it. How big will it be, how many locations will it have, what management structure will it have in place, and how much money will it be making? Bearing all that in mind, what might be your target price?

When you approach an agent to sell your business, their first question will be, “Who might buy it?” And that’s the most important part of your vision – to build a company that is attractive to potential buyers.

There are three different categories of people or companies who might be interested. First of all, there are those already in your market – probably a competitor or perhaps your own management. Then there are passive investors, who would continue to run your business as it is now.

Finally, there are companies who want to expand, perhaps doing something aligned to you but not competing with you. For instance, if you make plastic widgets, you might be bought by another company in your chain – a plastics manufacturer say, or a widget distributor.

The way you develop your business might change if you know you’re aiming to sell to a competitor, as opposed to one of your current suppliers, because their needs will be different.

Here at Insight Associates, we get involved in any number of exit plans, as well as the sales that follow.

None of them come out of the blue. All successful sales take place on the back of decisions about the strategic direction of the business which were made long, long before.

Very often, we were involved there as well, because to build your business the right way you need to ensure you have the funding in place for the necessary steps, and that your money is being spent in the most sensible way. As your outsourced finance department, that is the kind of strategic insight you get from us.

So if you don’t already have a clear idea of how you want the sale of your business to work, it’s time you did.

And if you think you could use some help either with a sale, or getting your company into shape so that it is sellable,
let’s talk.

Wednesday, March 22, 2017

Does the Government Care about Small Business Owners?

By now you’ll have heard the screeching tyres and smelled the burning rubber all the way from Downing Street, following Philip Hammond’s spectacular U-turn on plans to increase National Insurance contributions for the self-employed.

Half the media attention focused on the fact he broke a Conservative manifesto pledge.
I don’t know much about that; I’m not a political creature. The other half seemed to claim the U-turn as a victory for the small business owner.

Not if you look at the bigger picture.

If you ask me, the commentators have all missed a much bigger issue: What is the government actually doing for entrepreneurs?

Now, I know that this isn’t my usual blog topic, but please bear with me.

When I think of small business owners, one word comes to mind: Risk. These good people take on a huge personal risk financially, and even physically and mentally. Setting up and running a business involves huge amounts of work, and the stress can be debilitating.

Yet SMEs are the backbone of our economy.  We need entrepreneurs to create jobs and shoulder risks in order to create a productive and diverse financial ecosystem.

We’d be sunk without them.

So what does the Government offer as incentive to start a business? ...Very little.

The biggest tax incentive you get is Entrepreneurs Relief, a concession where the first £10 million of gains is taxed at only 10% (rather than the normal potential 28%). 

That’s all well and good when you’ve slogged for 20 or 30 years - possibly longer - and can look forward to giving the Government “only” 10%!

Day-to-day, however? You get very little.

A long-standing client of ours has run a successful business for many years. Thanks to some careful tax planning, he has now built up huge cash reserves. If he was to withdraw them, he’d be paying up to 50% in tax. If he waits and sells the business, he would only pay 10%. In the meantime, the cash is losing real value, gaining only a small amount of interest.

It makes no sense.

If you own a Limited company, on the other hand, you can pay yourself in dividends rather than salary. In effect, you’re compensating yourself as an investor. Quite above board if the circumstances are right, and you save yourself up to 25.8% on National Insurance.

Last year, everything changed. The Chancellor changed the whole structure of the tax on dividends from a system which actually gave you a reasonable advantage to one where only your first £5,000 of dividends is taxed at zero percent. After that, you pay more tax than you did before. From April 2018, this zero-percent band plummets to £2,000.

Isn’t it clear the Government is not rewarding the hard-working entrepreneur? Do they really care?

Entrepreneurs deserve a clear allowance, concession or benefit to compensate them for risking their all to build businesses which create jobs and benefit the economy.

In reality, Westminster pays lip service to our small business owners, but it needs to wake up to the very real challenges these stalwarts of our economy face on a daily basis. 

As for the media, they need to stop tallying all their petty political victories and losses, and focus on the bigger challenge here:

How do we encourage people to start businesses, instead of punishing them?

Rant over… But I’d love to hear your opinion too. Please do let me know whether or not you agree.

Wednesday, March 15, 2017

Don't Believe Everything You See

“We’re about to run out of money.”
I could hear the shock in this business owner’s voice. Not just fear – but shock…. because this horrible turn of events was entirely unexpected.

They had a good business, a good team, and a good product which was selling well.
They’d even tried to professionalise their accounting methods, buying the state-of-the-art Xero accounting platform.

The problem was, the numbers being fed into it just weren’t up-to-date. Their accountant hadn’t adjusted the system to reflect what they had done at the previous year-end, and so this year’s figures were wrong, too.
The business owners, however, had no idea this was going wrong – and trusted the numbers they were given blindly. They made decisions about their business based on inaccurate information.

The result: They woke up one day about to go bust – and didn’t have the slightest idea why.
In recent blogs, I've run through some of the biggest but yet most common accounting mistakes that can happen in your business. This includes you, the owner, not properly understanding the difference between profit and cash; and your bookkeeper failing to take into account information they are not given, such as expenses.

These are fairly different problems, but they have one theme in common.
Don’t believe everything your accounts seem to tell you.

Just because it’s down on paper does not make it true.
Mistakes happen all the time – bad mistakes!

And as business owner, it’s your responsibility to question what you see the whole time. If your gut instinct tells you something is wrong with your numbers, you need to investigate further. If you are not 100% sure that your accountant or bookkeeper is working by the book, you must challenge them.
At Insight Associates, we never give our clients any financial information until we are certain everything has been done correctly.

We work to checklists, have multiple people review each set of accounts, and check and re-check ad-nauseam to ensure everything has been accounted for. We compare figures to your budget and to last year’s figures, to make sure everything makes sense. We reconcile what your accounts say is happening with what your bank account says is happening.
You should hold your own accounting team to the same standards. Even if you hate dealing with numbers, you must ensure that there are systems in place, so that all accounts are up-to-date, complete, and verified. Ensure that whoever is dealing with your accounts understands the big picture of how your business operates, so that they can ask the right questions, notice what’s missing and when something doesn’t seem to make sense.

If you’re not absolutely certain your accounts are right, always err on the side of caution. It’s better to be pessimistic and pleasantly surprised than the other way around.
The truth is that larger companies have an advantage. They have the resources to put in place all the necessary systems to run their finances professionally. They rarely rely on one bookkeeper or accountant, but instead employ a variety of staff in their finance department with different skillsets, who can all double-check each other.

Smaller companies are more liable to make mistakes because they rely on one bookkeeper or accountant, who rarely work in tandem, do not have the insight into the business to spot mistakes easily, and do not have the resources to continually reconcile and double-check all figures.
If you are a smaller company (turning over £1m-£10m) but would like the same kind of smooth, professional financial management a larger company takes for granted, let’s talk. With our outsourced finance department, you can get those exact same systems, team and knowledge -right now!

Not only will you have complete confidence in your numbers and never have to worry again about whether they are right, we’ll show you how to use these numbers to make better business decisions – and grow much faster.

Wednesday, March 08, 2017

A Basic Accounting Error

“Our profit goes up and down like a yo-yo. One month we’re doing really well, the next month is a disaster.”
When the new client said that to me when we first met, I initially assumed that they worked with very tight margins and the costs of their raw materials fluctuated, or that perhaps they suffered from currency fluctuations.

But of course, it turned out to be something much more prosaic…..
An accounting mistake.

They paid their office rent on a quarterly basis – and so once every three months, it looked like their expenses were out of control, eating into their profits.
This led the business owner to some very bad business decisions. While he always had the money to pay the rent, he was under the impression that his business was unstable, and was therefore reluctant to invest in areas that needed development.

But of course, his business wasn’t unstable at all.
The rent covered an entire quarter – and so instead of being lumped as one massive expense in his accounts once every three months, it should have been spread over three months.
It’s basic accounting, and yet I can’t tell you how many businesses make this error, skewing their figures and giving business owners a false sense of their financial position. Unfortunately, many business owners are not aware this is happening.
It works the other way round, too. Put yourself in the shoes of a gym owner. Every January he has a spurt of new members eager to work off their Christmas excesses. He offers a discount to people who pay upfront for the year, leading to a flood of cash. He feels pretty good about life!
Let’s hope he doesn’t splurge too much…. Because, the trouble is, those people weren’t just paying for January – they were paying for an entire year.
Over the next 12 months, the gym owner will have to use all that money to pay for the equipment, staff and his own rent – leading to an entirely different financial picture… Possibly even a loss.
Even worse, some of that money which seemed like a sure thing in January can disappear overnight. Six months down the line, many of those January sign-ups will decided to quit, and ask for a partial refund.
If this gym owner’s accounts in January showed a bonanza month, he might expect a bonanza year as well. And yet that might not be a truthful representation of what was happening in his business.
In reality, those payments were meant to cover 12 months – and should be spread out in his accounts, accordingly. This is a far more accurate picture of his finances.
A related issue for many businesses is that you have to enter expenses and revenues when they are incurred, rather than when cash changes hands.
So for example, if you send out a long list of invoices in January which don’t get paid until April, it is essential that you record these as January sales, not as April sales. Similarly, if you put in an order for the delivery of raw materials in June, that’s when it needs to appear on your accounts – not in August, when you pay for them.
And if you know that you’re expecting a bill in June and it hasn’t arrived, you still need to account for it in June – then chase it up!
The key is that you need an accurate representation of your income and expenses in any given period.
If you simply record when the cash comes in and out, you’ll get a distorted picture – and we all know what that leads to: Bad business decisions…. Mistakes….. Disaster!
If you would like confidence that your accounts are accurate and complete at all times, let’s talk. This is one of our key services to our clients, and we’d be delighted to help you too.

Tuesday, March 07, 2017

What’s Missing From Your Accounts?

Imagine that there’s a serious flaw with the way your bank calculates your balance.

The computer keeps accurate track of all the money you have coming in. But for some reason, it just doesn’t “see” the payments you make by cheque. Those never show up on your statement. Similarly, your bank balance never takes into account any money you transfer to your spouse.

Once a year, the whole system is brought up-to-date, and at that point the balance appears correctly.

How much confidence would you have in your bank statement, every other day of the year?

Not much, right? It would be really difficult to trust a system that routinely left out some crucial facts.

Unfortunately that’s exactly what happens in many businesses - without anyone, certainly not the business owner, really noticing.

Last week I started telling you about some of the biggest accounting mistakes which routinely happen in businesses, making it impossible for you to really understand your financial position correctly.

Missing information is one of them.

All too often, your bookkeeper will only process what lands on his or her desk. They won’t pick up on things if there is no paper record.

Take payroll, for example. Perhaps they might process what employees are paid, but never take into account the tax and national insurance you’ve paid on top of that.

Equally, there is no piece of paper to show how your assets have depreciated, so this isn’t factored into your accounts – at least until your accountant gets around to it at the end of the year.

There are all sorts of other missing expenses. What if your MD spends time wining and dining a potential client, but only submits an expense claim every six months?

In the interim, your accounts will simply be wrong – sometime sseriously so. And yet, business owners very rarely question the figures they are given. They make all their decisions based on a bottom line which is skewed.

Luckily, once a year you should get your real figures, when your accountant comes along to do your annual accounts, and gives you a complete picture.

But that isn’t really good enough. You need accurate information all year long, if you are to avoid terrible mistakes.

That means that you need monthly accounts, done to the same high standard as your annual ones.

Is your bookkeeper qualified to do this?

If you’re not sure, time to start asking some difficult questions.

Whoever handles your accounts on a day-to-day basis needs to understand enough about your business to know what information they’re not getting, as well as what information is landing on their desk.

When we do our clients’ monthly accounts, for example, we work to a strict checklist. We also double - and triple-check that what your accounts say is happening matches what your bank says your position is. If not – alarm bells ring. All that should be happening regularly in your business, too.

You wouldn’t dream of accepting regular personal bank statements that weren’t accurate. Don’t accept any less for your business.

And if you would like to receive complete and accurate accounts every month please get in touch. We won’t just send you over the figures, but make sure you can use them to make the best decisions for your business, too.

Monday, March 06, 2017

Is Your Profit Real?

Here’s a question.

You’ve just invoiced your clients for the work you did over February. It was a good month – you’ve never been so profitable!

For a long time, you’ve sworn that when you have enough cash, you’ll invest in a new piece of equipment that will push your business ahead.

Should you go ahead and buy it?

Now, obviously there are many variables here so this is a bit of an impossible question.
But I’ll give you my two cents (or rather, two pence) anyway.

Until you see that cash in the bank, you can’t count on it ever materialising.

It may look like you’re in profit, but that’s just theoretical until your clients actually pay up, and your money is safely in your account.

If that didn’t occur to you, you’re not alone.

Many business owners find it hard to internalise the difference between profit – and cash. It’s one of the main reasons companies go out of business.

Here’s how I think of it.

Profit is a number your accountants create to show how much money your business is making. It is both theoretical and subjective. People can have different opinions about just how profitable their company actually is, and there are different ways of measuring it, too.

Cash, on the other hand, is real and objective. It’s the money you have in your account at any one time…. You can always put a figure on it.

The problems start when you confuse the two.

As a business owner, you might see lots of money in your account and think it’s all there to spend.

But whoah! Hold on a second. Lots of cash doesn’t mean you have any profit.

Later in the month, you might have a lot of obligations coming down the line: Tax, wages, rent and so on. If you’ve already spent that money you won’t be able to meet those liabilities, and the very viability of your business will be threatened. Your “cash” doesn’t become “profit” until you’ve covered all your overheads.

The example I started this email off with is the polar opposite. Business is going well, you look profitable on paper. But that doesn’t mean you actually have any cash.

Ask all the businesses I’ve come across who have had to sue to get money owed to them.

And by the way, that’s a good example of a case where profit is subjective.

What if you think that the money will be easily recoverable, while your business partner has written it off as uncollectable? You might think that despite the delays in collecting your cash, you are still quite profitable. Your business partner, on the other hand, thinks your profit has disappeared.

For a long while, it really might not be clear how profitable you are, if at all.

And that really is the key. To understand how much money you’re really making, you need to take the long view.

You need to understand not just what’s in your account and on your balance sheet today, but what’s going to happen tomorrow as well: Which bills are coming in, which payments are going to materialise…. How much money you’re really going to be left with a few months down the line.

For that, you need excellent accounts, which look forward as well as back.

Over my next few blogs I’m going to show you other common accounting mistakes that business owners either make themselves, or overlook when their bookkeepers make. These can be ruinous, because they give you a skewed view of what’s really going on with your finances, and lead to bad decisions.

Sunday, March 05, 2017

Business Costs You Should Not Accept

I’ll tell you what drives me crazy.

A few weeks ago, one of our clients ordered a £7,000 delivery to their office.

When it arrived, the courier handed over the invoice: £7,050.

That’s right.

They’d added on an extra £50 for the delivery.

Worst of all, the client paid it without a second thought.

This is where I let out my primal scream…..! (I’ll leave it to your imagination.)

It’s a rip off, but their supplier snuck in the extra charge because they thought they could get away with it – and most people assume they have no choice but to accept.

In fact, this is just one type of cost every business has, but nobody accounts for. These can add up quickly, and before you know it, your overheads are out of control.

The good news is most are avoidable.

Here are just a few:

  • Creeping costs: These are little charges that get added to a bill you’ve already agreed to, just like the delivery charge above. Another example might be a supplier telling you once you were halfway through a project that an additional investment is necessary.
  • Stealth price increases: All those regular expenses you pay such as electricity, gas and travel? The companies love to hike up your tariffs when you’re not looking.
  • Additional costs you haven’t considered: This is your own oversight. For example, if you’re buying from outside Europe, you might forget you have to pay a duty. Similarly, if you are not organised enough to collect your goods promptly once they reach port, the port can charge you (“demurrage”).
  • Suppliers passing on costs to you: One of our directors, Shirley, used to work for a Pharma company. If, when they imported their raw materials, there was a delay, they sent the materials by air freight instead of shipping them – and passed on that cost to the client.
So how do you prevent these costs spiralling out of control?
First of all, make sure they are no longer hidden. All the examples above can only happen because no one in the business is controlling expenditure properly.
There needs to be an approval process for all expenses, and every invoice needs to go through it – no exceptions. If you raise a £7,000 purchase order and the invoice comes in for £7,050, it needs to go through the approvals process again.

As the business owner, ask to see all invoices from the last three months and audit them.

Do you know what money is being spent on? Do any of the sums surprise you? Who’s approving what? Are existing procedures being followed? Are there any additional costs (such as demurrage) you seem to be paying repeatedly, which can be prevented?

Then ensure that someone is held accountable for every penny you spend.
Second, unexpected costs need to be challenged. That £50 delivery charge? I would have refused to pay it. The supplier is unlikely to give up on a £7K sale over the delivery charge.
But that will only happen regularly when your company culture encourages people to pay close attention to payments.
Do you feel that your costs are out of control? We can help you create the processes you need to control your costs much more strictly – and cut your overheads right down.
If that’s something you want to chat about please get in touch. We’ll make sure that there’s not a single penny spent that isn’t accounted for!

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
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