Financeheads Blog

This article in FinanceWeek highlights the importance of having business analytics to allow effective decision making – particularly around the areas of operational efficiency and target marketing. For many SMEs determining and measuring Key Performance Indicators is going to be done without the aid of mega sophisticated software but it can be effective non-the-less.

Businesses need to identify the root causes of their (potential) success, set these as targets and then have processes for capturing information to measure them. This might be the number of cold calls made and an anticipated conversion rate or perhaps the number of customers from particular industries. The detail will vary by business but the principles will be the same and some measures (ageing of debtors) should always be measured.

Luckily finance folk are experts at measuring and analysing and FinanceHeads brings such people together all focussed on helping SMEs to succeed.

With the summer holidays drawing to a close, now is a good time for business owners to run a quick financial health check on their business. This might involve looking at key numbers but significant additional information can be got from ratios and interpretation. Much of this will be intuitive to business owners who will have a sense as to what results they are expecting based customer activity and their cash position, for example. However,  it is easy to get stuck in a rut and that is where having a fresh pair of eyes can help with a different perspective and spotting the gaps.

So as the children get their text books out and try and remember what they learnt last term, business owners can also consider what they are going to learn in the coming months.

Its that well worn topic cashflow again – our last one for a while.

Having the right legal documents in place is another factor to consider. Contracts that include clear payment terms will give businesses some legal weight behind them but you must be prepared to adhere to it – if no one is willing to follow it through then it becomes redundant.

Clearly the priority should be to try and broach the issue of payment in a non-confrontational manner long before it gets to the point of needing to threaten legal action but sending a seven day letter to the accounts department to help focus their attention on how serious you are about getting paid is invaluable but make sure it includes some red ink.

There are many more ways of reducing the pain of collecting the cash – we hope you will share your thoughts by commenting on this blog and sharing it with others.

Cashflow is our topic of the week again.

Last week we stressed the importance of asking for what you are entitled to. However this is much easier to do if you have the right legal documents in place. Contracts that include clear payment terms will give businesses some legal weight behind them. At the time of negotiating the sale, if both parties have clear expectations about the goods and services to be delivered and clear understanding about payment terms (and the process for payment) many points of subsequent discussion can be removed.

Cash collection isn’t something to be considered when payment is overdue – it is for consideration when the parties are establishing the terms of business.

Asking clients for money is a task that many business owners find difficult, and is one of the biggest barriers to a healthy cash flow. By delegating this job to a trusted individual who is not involved in the sales process, owners can ease the burden on themselves considerably – and significantly improve their cash situation at the same time.

SMEs are notoriously bad at asking to be paid. Often it is the owner that holds the sales relationship with the client and there’s often the fear that chasing money will destroy this relationship.

Someone else (the book keeper or an administrator or specialist) may be better able to liaise in a calm, professional and on the whole friendly manner with a client’s accounts department.

We will continue to post blogs on cashflow improvement in the future – watch this space.

An excellent article in Real Business Magazine  focuses on 27 ways to boost your cashflow. As Finance Directors this inevitably falls under our remit for clients and 2 FinanceHeads have contributed some of their experience to this article:-

- Invoice as soon as possible, regularly, not just at the end of the month and

- Ask customers to pay.

Wise words indeed. To find out more either read the article, comment on this blog or feel free to get in contact.

In a recent press release I was asked about the support we offer independent Finance Directors.

“Our model is based on collaboration between our members rather than competition. From a clients point of view this means they have access to all the benefits offered by a larger organisation while still getting the personal service and value for money offered by an independent.”

Clearly this is only one of the benefits and as the organisation increases the benefits to all should increase too.

A part time FD will often be helping either business owners or their managers to understand the financials of their business. This should always result in better decision making which will hopefully improve cashflow/profitability.

Whilst this tailored service can be very effective it does of course mean that each client is, effectively, bearing the full cost. Programs that bring a range of businesses together can not only help spread the cost but there are additional benefits to be gained from mixing with owners and managers from other businesses.

Either way Finance is a key skill for owners and managers to have at least some understanding of even if they lead the detailed interpretation, summarising and recommendations to their Finance Director. The numbers don’t just happen, businesses generate them and understanding how can be fun.

An FD is always reviewing (management) accounts for clients/potential clients and we take for  granted the value of doing so.  Some businesses take advantage of this expertise but others wait until after the year end for the statutory accounts. So why do we regularly review the management reports:  

- to ensure accuracy

- identify profit improvement opportunities

- guide cashflow forecasting

- assist with planning and hence predictability as the basis of decision making.

Of course the detail will vary in every case but its good to have a starting point. And how much benefit you get from the review is often linked with how often and when it is done – and what information is available.

The numbers tell a story – by reviewing the accounts a business owner may stand a better chance of ensuring there is a happy ending.

A recent FinanceHeads poll, which surveyed a cross-section of SMEs around the country, revealed mixed feelings over the possible effects of the election. 55% of respondents believed it would have a direct impact on their business. Despite this, however, it has been business as usual for 95% of respondents in recent weeks, with only a small minority considering delaying important decisions until after the election.

On a day to day level, of course, there will be very little change immediately but the changes will be felt over time – and it’s these long term effects that many are worried about. There are plenty of things that businesses can be doing in the meantime, though, to take charge of their own fortunes and to help combat any negatives that might be coming their way.

Now is an ideal time for entrepreneurs to be evaluating their business objectives and identifying ways to make their money work harder and more efficiently and of course a FinanceHead can help with this!