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, 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!

Saturday, March 04, 2017

Flying Blind - Do Your Management Accounts Include This?

Nowadays passengers aren’t allowed into an aircraft cockpit. But all of us can picture it: A tight space crammed full of hundreds of mysterious controls and displays, showing navigation information, engine information, speed, altitude and so on.

No pilot would fly without this information, because it enables them to make good, safe decisions. Without it, they are ‘flying blind’, and risk crashing.

That’s how I think of businesses that don’t produce management accounts every month, too.

To make the right decisions you too need hard data, telling you what’s really going on in your business. If you try to chart your course without the financial facts, you too are ‘flying blind’. You may not crash, but you’re unlikely to get where you want to, either.

As I explained last week, monthly management accounts are an internal document that do what it says on the tin: They help you manage your business better.

So what should be in them?

Basic Information

Every management account pack includes the basic information you’d expect to see:

Turnover, gross margins, operating profit, overheads, cash in bank, debtors and so on. But that’s not where it gets interesting…….


Every business has key facts they need to monitor to know how well their business is doing. These will be unique to you.

For example, one of our clients operates on very tight margins. If the cost of their raw materials moves even by 1%, their profit can easily be wiped out. They need to keep an extremely close eye on this, so that they can adjust accordingly.

Another client is very dependent on two large customers. One of their key objectives for this year is to increase their client base, so they are less exposed if one of their big clients decides to leave or to cut their spending. Their management accounts track what percentage of their business these two clients are worth.

What figures are crucial for your business?


Once you’ve established your KPIs, ‘dive deep’.

For example, a clients providing training courses was having issues with profitability. Initially we tracked how profitable each category of course was each month. With time, we realised that this wasn’t detailed enough. They needed to see the profitability of every single course in order to make more informed decisions.

What kind of detail would be useful for your KPIs?

Show progress over time.

Your figures are not meaningful until you can see them in context.

£200K in sales in January can be good if that’s up from £100K last January, or bad if it’s down from £300K.

Benchmark against previous results, showing progress over time. Compare, also, to where you thought you’d be – those figures are in your budget. Use charts or graphs if necessary to make the material palatable….

Project forwards

Your management accounts are not there to help you understand the past. They’re there to help you manage the future (although those are intertwined…).

Set out on paper what you expect to happen over the next month. What do you already know about your cash flow? What do you already know about your KPIs?

Over time, you will learn what information is useful to you, and adjust your management accounts accordingly.

When we work with a new client we start with a monthly management account template, which we tweak as we learn more about the client’s business and their challenges. Over time the accounts become ever more bespoke – and progressively more valuable.

This is the kind of information mature businesses take for granted.

If you have big ambitions for your business, but lack the financial information you need to grow strategically get in touch. With proper management accounts each month, every decision you take will be more effective.

We’d love to help you fly…

Friday, March 03, 2017

How Useful Are Your Accounts?

It’s that time of the year again. Your end-of-year accounts have just landed on your desk.

You flip through them, and note that profit is up this year, but that so are overheads.

Why have overheads gone up? Which overheads, specifically, are costing you more?

You resolve to look into what happened over the last few months (although realistically, it might take several weeks to put together a detailed picture of what exactly happened).

In the meanwhile, you are just relieved that the end-of-year accounts were completed on time, satisfying your legal obligations – and go back to work.

That, I hazard, is a best-case-scenario for most business owners, because most people don’t even read their end-of-year accounts.

The reason is very simple:

End-of-year accounts are important, but not actually useful when it comes to managing your business. They provide an overview of what happened last year, but often raise more questions than they answer, telling you what happened – but not why (“Hold on, why was March such an exception?”).

They don’t help you run your business any better.

For that, you need management accounts.

These are prepared monthly, not annually, and you don’t file them at Companies House – they are strictly for internal use, and to help you, the business owner.

Most importantly, their aim is not to provide a general overview of how you’re doing (which I consider a form of score-keeping), but to provide you with the exact information you need to tell how your business is performing, and make informed decisions about what to do next.

So what do they include? I’ll give you an in-depth picture in the next blog. But the key principle is this. Management accounts should look different for every company, because while you might need to keep a close eye on your overheads, the company next door might have particular issues with cashflow…. Or old debt… Or might be struggling to tell which of its products are profitable.

Your report should be tailored to you, giving you the financial information you need not just to understand the past, but to navigate the future.

For that you need an accountant who is interested in more than bottom-line numbers. He or she will need a clear view of how your business works, what your goals are and what issues you are facing.

When we start working with a new client, for example, we spend a lot of time getting to understand their business. Many of the owners we work with have never actually seen a really good set of
management accounts, so we work with them to figure out what information will be useful to them.

This is an iterative process. Once they get their initial figures, they suddenly realise that they need to get more in-depth information in one area, and that there are other pieces of information they could use, too. Very quickly, their management accounts become indispensable!

If you’re relying on your annual accounts to give you the financial information you need, you’re running your business with one hand tied behind your back.

If you would prefer to get regular, clear financial information that will help you run your business better, hit ‘reply’ and let’s chat. We find that company owners who make decisions based on clear facts not only see their businesses grow much more strategically, but feel more in control, too.

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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