margins Archives

How to improve cashflow and make more money

To keep cashflow grounded in reality, go backwards for six months to see what the actual cashflows have been before you go forwards and model the future.

Knowing how to improve cashflow is always important and as we continue to live and to trade in uncertain times, cashflow management is even more important.

We also face a very difficult banking climate which puts a huge premium on self-reliance, being the master of your own cashflow destiny and not having to look to your bank for funding.

So here are five ways to improve cashflow and make more money.

1. Cashflow model

Build a simple cashflow model in a spreadsheet, which might look a little like this:

Stay grounded in reality, go backwards for six months to see what the actual cashflows have been before you go forwards and model the future.

Update the model each month with the actual cashflows for last month and any modifications to what you think the next few months will bring.

Use the cashflow model to identify changes you can make across your business that will bring more money in.

If you are a borrower, share your cashflow model with your business bank manager early on so they can see the steps you are taking to manage cashflow and you can identify future pinch points and manage them together.

2. Credit management and control

If you offer credit to customers can you use a direct debit service such as GoCardless?

Credit management starts with trying not to market to customers who are bad credit risks or slow payers and ends with consistently getting paid in good time.

You have to pay attention to credit control because otherwise cashflow suffers, costs rise, stress increases and your business might fail.

We have a number of blogs on credit management that you might find useful.

3. Improve margins

The more profit you make from each sale, the more money you make. So, review your prices and your costs of sale to see where improvements can be made. Be competitive, but that is not necessarily the same as keeping prices low.

If every £100 of sales you make can generate an extra £5, how much more money will come into your business?

See our blog on profitable pricing.

4. Reduce overheads

How to improve cashflow – spend less money!

Every pound of overhead is a pound of cash that goes out of the door.

Review your overheads to make sure you are not spending more than necessary and also to ensure you are getting value for money spent.

5. Phase payments to creditors

Some payments, particularly quarterly ones like VAT, rent and lease payments, can fall to be paid at the same time, creating a difficult pinch point every three months.

Can you change the months in which these payments are made so they are phased more smoothly and put less pressure on your cashflow?

For example, you can you ask to change your VAT quarter to move the VAT payment to another monthly cycle.

By staying on top of your cashflow, you will be able to grow your businesses without relying on or borrowing as much money from your bank.

You earn more or pay less interest, you can re-invest the cash generated in growth or by rewarding key staff and you have more time to concentrate on running your business – doing what you should be doing!

Michael

Related links:

Cashflow

Why two bank accounts are better than one

Get paid quicker – 5 ways to avoid bad credit risks

What value does an FD add – and why you don’t need one

This gives your business the best of both worlds – the senior financial input you need but without a full-time cost. It’s a solution that an FD would be proud of!

What value does an FD add to any business?

Broadly, there are four things a good FD adds to any business:

1. Financial information

No business can last for long without solid, consistent, up to date performance information that looks at:

P&L, compared with budget, last year, forecast
Margins
Debtors
Cashflow forecast
Client & product / service profitability

2. Financial controls and processes

Mostly, these are routines that happen every day, week or month and need to work like a well-oiled machine:

Solid bookkeeping that’s right, first-time
Frequent bank reconciliations
Robust credit control
Intelligent cost control

Without these processes and systems working well, the financial information required simply won’t be produced in a useful way.

3. Getting other areas of your business to be aware of financial issues and constraints

Ensuring that everyone in the business is aware of the financial dimensions of their job, particularly when making decisions.

4. Being involved in occasional and one-off decisions and projects

Investing in new assets, buying / selling businesses, promoting or recruiting senior staff, lease renewal. These are some of the issues that pop up from time to time and require experienced financial input. But they don’t arise every day.

All of this is important, so why don’t I need an FD?

The tasks listed above are either routine, day-to-day or monthly tasks or they’re occasional issues that pop up rarely. The routine tasks can be dealt with by good bookkeeping and accounting staff, or they can be outsourced.

The occasional issues are exactly that and don’t need an expensive, permanent presence to deal with them.

If not an FD, then what’s the alternative?

A far better answer for most businesses is to enlist the help of people like Blue Dot Consulting to act as a part-time FD to:

put in place the financial processes and controls you need
train and coach existing staff to do a more demanding job
ensure the right information, bespoke to your business (not the standard reports that you currently get from your accounting system), is coming out to those who can act on it
maintain an ongoing presence in the businesses to ensure that everything continues to run as normal
pitch in to the occasional decisions as and when required

This gives your business the best of both worlds – the senior financial input you need but without a full-time cost.

It’s a solution that an FD would be proud of!

Call Michael Austin on 020 7125 0270 or email info@bluedotconsulting.co.uk and let’s have a free-of-charge chat about your business.

Michael

You can’t run a £1m business and only have your bookkeeping updated every three months!

Part time Finance Director

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Chartered Accountants – Bedford House, Fulham Green, London, SW6 3JW

Client profitability analysis – make more money from every sale you make

Profitable sales are more important than sales per se.

Running a client profitability analysis, at least every quarter, will highlight which of your client contracts are making the profit they should be.

And which are not!

Many businesses will focus on sales as the key driver for success, but anyone can make a sale if the price is low enough. Profitable sales are more important than any sales.

It sounds weird and it’s a brave thing to do, but if some of your clients are costing you money and you can not renegotiate the deal, you might be better off without them. I bet you’ve thought of a couple already!

Client profitability analysis

1. Find the poor performers

Firstly you need to know which clients are the loss-makers. Do you have the information to make an informed decision?

Gut-feel is not good enough. Your management information systems need to tell you the answer in an objective way. Which probably means some manner of time recording if you’re selling services.

But don’t forget to add in softer measurements such as the number of new business referrals you get from the client. Lower margins from a regular referrer could be a price worth paying and a way of saying thank you.

2. Take action

Once you know the loss-makers, ask yourself whether you can change the price you charge or the service you deliver in order to make them sufficiently profitable. Your client profitability analysis has more than paid for itself if you can achieve this.

Having identified the loss-making clients, you need to contact them and give them the news. Nicely! Agree a notice period and perhaps try to offer them an alternative supplier in their area.

You’ll now have spare resources to be deployed on more profitable business.

3. Use what you learnt in your next fee proposal

Client profitability varies over a period of time so conduct this review quarterly or half-yearly rather than culling a potentially profitable relationship because of one bad month.

Finally, take what you learn about profitability and margins and bake it in to your pitches and proposals for new work, otherwise you create a conveyor belt of low profit clients simply washing through your business!

What are you waiting for – go lose some clients today!!

Do you have the financial information necessary to carry out a client profitability analysis?

Many businesses we work with lack important information through a combination of poor bookkeeping and not using their accounting software to produce the right financial reports.

If this sounds a bit like your business then call Michael Austin on 020 7125 0270 or email info@bluedotconsulting.co.uk and let’s have a free-of-charge chat to see if we can help.

Michael

We could get a lot bigger if only we sell what we sell!

More often than not the great new customer doesn’t materialise. What we end up with is a sprat to catch a plankton!

The frustrated cry of the MD when we were looking at how profitable sales of the recent contracts had been and how his sales team had performed.

The pattern was clear – the profit margins were consistently higher where the product sold was the standard product that the company sells.

However, in all the cases where the sales guy had tried to offer something slightly off-piste, not quite the standard product – the margins dropped!

A sprat to catch a mackerel

The time-honoured phrase which the sales guy uses to justify why he’s done a deal with a client that sits well outside the company’s standard products and services.

“It’ll be great, the customer will love it and come back for more. They’ll be a great customer!”

Reader, more often than not this isn’t how it works out. What we end up with is a sprat to catch a plankton!

Not only does the great new customer rarely come on board, it’s often the case with these off-piste deals that there’s a great deal of extra administration, tweaks are required to contracts and to product / service literature and – perhaps worst of all – payment terms may be stretched.

All of which, should they sign up for more, the great new customer will expect to see as the norm.

What’s wrong with selling what the company sells?

Which takes us back to the frustrated MD.

He can see:

the time wasted
the profit margin lost
the extra administration
the frustration across the rest of his business

And he can see that he has to do something about it!

Get the sales team back on track, selling what the company sells and making more money for everyone.

Profitable sales

Underlying this situation, the MD had the financial information he needed both to identify and to rectify the problem.

This information could be in a CRM system, such as Salesforce, or in the bookkeeping system.

In either case, the correct sales and costs data needs to be input in the right way to ensure the business gets a useful flow of profitability information coming out.

Are your systems up to that?

If not – can we help you?

Call Michael Austin on 020 7125 0270 or email info@bluedotconsulting.co.uk and let’s have a free-of-charge chat about profit improvement.

Michael

Proof of Profit

Profitability and cashflow

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What are management accounts and why are they useful?

So, although a restaurant and a recruitment business will both have a profit and loss report – the structure and content will be different.

What gets measured gets managed.

And if you’re running a business then management accounts are your most important tool for measuring and managing business performance.

Take some time to find out more.

What are management accounts?

Management accounts are financial reports that provide detailed insights into a company’s financial performance and position.

Crucially, they are tailored to the business they are measuring. So although a restaurant and a recruitment business will both have a profit and loss report – the structure and content will be different.

Management accounts, if they are to be useful, need to be regular. This could be quarterly, prior to a VAT return, or, preferably, monthly.

They also need to be consistent – from one month to the next, from last year to this year, from actual to forecast.

What makes management accounts useful?

Produce them quickly and then share them, use them and understand them!

Time is of the essence

In most businesses there’s no reason to take more than five working days to produce the management accounts. This means the bookkeeping has to be efficient and the rest of the business has to be involved and invested in the process. For example:

getting all invoices raised within two days of the month end
calculating commissions, bonuses, and other costs for which there won’t be an invoice
agreeing ALL bank accounts to bank statements the day after the month-end

And this is a good reason to produce management accounts each month – you get twelve goes a year rather than four.

Or none!

Use, or snooze and lose

Management accounts need to be used!

They are telling management how their business is performing and they contain clues and messages as to how performance can be improved:

sales are up but margins are down
why do have less cash now than we did three months ago?
will all of our customers pay and why are some taking over 90 days?
are we allocating costs to projects correctly?

Your business, your questions. But you can’t ask the right questions without the right information.

Of course, management accounts are only useful if they go to the right people. More useful still if they are used in conjunction with and compared to other business information such as sales, marketing, operations and production information.

Is information across your business consistent? Is it discussed and is it understood?

Make sure everyone understands what they’re looking at. Finance is no stranger to jargon and by no means does everyone understand what a balance sheet is.

So make sure everyone knows what they’re looking at.

What’s included in management accounts?

There’s no RIGHT answer but here are the main reports:

profit & loss for the year to date, vs last year, vs budget / forecast
profit & loss by month for the year to date and the last 12 months
balance sheet vs last year
aged debtors list
aged creditors list
cashflow for the last and next six months

Your business may require additional reports e.g. for sales performance, production metrics, stock balances. And if it does then make sure people are producing them in good time.

A word about bookkeeping

Your bookkeeping needs to measure the revenues and costs that are important to measure.

Distinguish between costs of sale (costs only incurred because a sale has been made) and overheads (costs that will be incurred anyway) because they will behave differently and therefore will need to be managed differently.

Financial planning and cashflow

Management accounts are key element of business and financial planning.

A consistent and useful structure for management accounts can easily be used to create budgets and forecasts.

Comparing actual performance to budget and, more usefully, against a series of forecasts updated during the financial year is very helpful and all of this work forms a good basis for next year’s business plan and budget.

SWOT analysis, “what-if” and other business management tools can be more easily deployed in an environment with a strong management accounts foundation.

And don’t forget cashflow!

Some businesses don’t need a cashflow model but most could benefit from one. Our cashflow advice is always to look backwards before you look forwards to ensure your forecast is grounded in reality.

Also, you’re going to need some of the building blocks provided by your management accounts:

aged debtors and creditors
good, accurate bookkeeping
agreeing ALL bank accounts to bank statements the day after the month-end
actual rather than “hoped-for” expenditure and revenue
forecast income and expenditure

Everything inter-relates and if you do it well then your business will perform much better.

What are management accounts and why are they useful?

Quite a deep dive into management accounts which I hope was useful.

We help lots of businesses with their financial management and if you think we can help you then please give me a call on 020 7125 0270 or email info@bluedotconsulting.co.uk

Michael

Related links:

Management information

Finance essentials for the non-financial

Client profitability analysis – make more money from every sale you make

^{_{© Blue Dot Consulting Limited}}

Profits, cashflow and getting paid – the more things change, the more they stay the same!

Business basics don’t change, we simply become more or less complacent about them. Now is not the time to be complacent.

Elections, inflation, disruptive technology such as AI – uncertainty increases but what can you do?

The simple answer is to get the basics right and there’s a great chance you’ll be fine. There are three things to concentrate on.

Profits, cashflow and getting paid.

Increase profits

Up to you how you do it, but the options include:

increase sales and margins
cut costs
be more competitive

But keep a very careful eye on your margins. Try not to “buy” sales with low margins but do think about saying goodbye to unprofitable clients or services. Discarding the deadwood can allow you to reduce overheads, spend more time on marketing and improve profits.

Cash is king

Heard it before? Of course you have and the reason is that it’s universally true.

There are two types of business:

Those that are well-funded and consistently profitable. They can get by without a cashflow model. Not wise, but probably not harmful.
The rest. That’s most businesses. If it’s you and you don’t have a cashflow model – start one today.

Get paid in good time

“A sale is a gift until it’s paid for”. This is no time to be too polite about getting paid and here are seven quick steps to better credit control:

Credit vet your prospects and current clients – a monitoring service that tells you about CCJs would be helpful.
Have a good set of terms & conditions that you get clients to sign.
Invoice clearly, in good time and for the correct amount. Don’t let an incorrect invoice become an excuse for it not to be paid.
Send invoices by email so they can’t be “lost in the post”.
Be very active at chasing for payment. Calling is better than writing, certainly for the bigger debts.
Employ a “pincer movement” where you chase the person who bought from you as well as chasing the accounts payable department.
If it comes to it – sue for your money (got to give those CCJ monitoring services something to monitor!).

Profit, cashflow and getting paid – Back to business basics

This blog could have been written at any time in the history of commerce. If Gutenberg had published it he may not have been made bankrupt!

Business basics don’t change, we simply become more or less complacent about them. Now is not the time to be complacent.

Michael

And if you need some help with the business basics then there are a number of our blogs that can give you some practical hints and tips, or perhaps give us a ring on 020 7125 0270.

Related links:

Profit improvement

Cashflow

She’s a bulldozer when it comes to credit control and getting paid

_{Chartered Accountants – Bedford House, Fulham Green, London, SW6 3JW}

Measure business performance and make more money

Whether you’re scoring a Test Match or running a business gathering and recording data accurately and completely is the foundation for useful information.

How you measure business performance is up to you but you might begin here:

What do you need to know?
When do you need to know it?
Are you getting what you need?
Do you understand what you’re seeing?

We happen to think measurement of profitability and cashflow are really important but there are industry-specific measurements, such as occupancy in the hotel industry and average revenue per user in telecoms and your industry might have some specific metrics that are key for benchmarking and explaining your business to third parties, such as investors.

As I say, it’s up to you to figure out what’s important to know and then make certain you know it.

And use it!

Good record keeping – a measure of success!

Whether you’re scoring a Test Match or running a business, gathering and recording data accurately and completely is the foundation for useful information.

In our world, bookkeeping is the data gathering & recording and we can’t emphasise enough that this is done in detail and kept up to date. Use technology but above all get the people and the workflows right.

And think about the information you want to get out of your software because it is heavily determined by how data is entered.

Use accounting software that produces the information you need

I bet you thought they were all the same, these accounting packages, right?

Not so. Focus on how good the reporting function is and ensure that useful reports are set up for you in your accounting software.

Although there are reporting apps that can be added to cloud accounting software, our view is if you need an app then you’ve chosen the wrong software.

Measure business performance and improve it

It almost goes without saying but I’ve seen many business owners’ eyes glaze over when it comes to management information.

Which leads us back to the top of the blog – you choose what you need to know.

And we can help – call us on 020 71250270 or email info@bluedotconsulting.co.uk

Michael

Related links:

Management information

Have a management accounts makeover – clarity is everything

Monthly management accounts – five steps to useful numbers

none of these steps will be very effective if you don’t have the people or the accounting software in your business to produce the information you need when you need it, so make sure that you have these basics right and seek help if you don’t.

Monthly management accounts are essential for every business.

Quite simply, you need to know how you are performing and you need to know what to change or do more of in order to perform better.

Why monthly management accounts are a good idea

Management accounts, ideally produced monthly, tell you how your company is performing. For the month, the financial year to date, against budget, against last year.

Armed with this information and, ideally, other non-financial information, a management team can get the business to perform better by doing more of what works and less of what doesn’t. Things like:

controlling costs
improving margins
boosting cashflow
reducing risk through better credit management

Sounds useful? Here are five steps to help you get useful numbers that will make a difference.

1. Monthly management accounts & five-day deadline

Produce your management accounts, using a format that everyone understands, within five working days of the month end.

They should contain no surprises (do you really not know how your business is performing throughout the month?) and your top team need to discuss the numbers, absorb the messages and take action.

2. Profit & Loss information

You need profit & loss information for the month, year-to-date and compared against your budget and against last year.

Variances from budget and last year need to be understood and explained.

You also need information on gross profit margins, ideally by customer and by product / service.

Finally, there is a risk of being too focused on the present. Try to include some longer-term analyses such as moving average and last twelve months performance data. These smooth the peaks and troughs and give you a good sense of the trends in performance.

3. Cashflow and debtors

A profitable business can still go bust if it hasn’t got the cash to pay the bills.

Also, it’s a huge pain to run a business with a poor cashflow when it always feels as if you haven’t got enough money in the bank.

So include cashflow and debtor information in your management accounts pack and hold people’s feet to the fire to make them accountable for this part of your business performance (not just financial people – sales people have a big part to play in credit management!).

4. A picture paints a thousand words

An MD of a client of ours simply does not understand pages of numbers and he’s not alone. Therefore, include graphs and charts to tell the story in a different way.

Graphs often make a point more strikingly than numbers and are particularly useful for portraying a longer-term story and showing the forward-looking trends.

5. Calls to action

There simply is no point in producing management accounts that are not acted upon, so include calls to action and make sure that at the meeting where performance is discussed there is an agenda item that follows up on last month so you know action really is being taken.

Finally, none of these steps will be very effective if you don’t have the people or the accounting software in your business to produce the information you need when you need it, so make sure that you have these basics right and seek help if you don’t.

Can we help your business with management accounts?

We help all of our business clients with management accounts and we do a lot of work in Finance Transformation.

Can we help you?

Often, we find that a business is using a cloud-based accounting service, which would be fine for producing management accounts, if only they knew how to use the software better.

We also find businesses that are drowning in spreadsheets, sometimes because that’s how they have evolved and sometimes because they haven’t got to grips with their accounting software.

See if either of these blogs sounds familiar:

So, if you think we can help you, let’s have a free-of-charge chat about your business.

Call Michael Austin on 020 7125 0270 or email info@bluedotconsulting.co.uk

Michael – @bluedotmichael

Related links:

Management information

Proof of profit

What are management accounts and do you need a makeover?

^{_{Blue Dot Consulting Limited}}

Chartered Accountants – Bedford House, Fulham Green, London, SW6 3JW