Financeheads Blog

I have had occasional mushrooms in my garden but this year I seem to have had more than ever and can offer a selection from very small and yellow through to large and creamy coloured. The sad thing is that I suspect none of them are edible and I am certainly not going to risk it.

Many clients have permanent finance staff working for them and it can be useful for the part time FD to get involved in any recruitment process. The challenge for MDs is that it can be hard to ask the right questions, let alone judge whether it is the right answer, when looking for staff in a discipline you aren’t sure about. In addition, many candidates are skilled at telling us what we want to hear so it’s often worth having a specific ‘test’ to make sure they can deliver and not just talk about it.

Finding the right staff can sometimes feel a bit like looking for the mushroom in amongst all the toadstools on offer but expert advice can help reduce the risk of getting it wrong.

I love this time of year when the trees change colour and sometimes the most unexpected plants provide the most vibrant show. I don’t even know the name of the main show off in my garden – I am sure an expert would, but an amateur would be as surprised by the display as I was the first year. I saw it’s role in my garden in a totally different light as a result.

There is seasonality in business that is predictable, and planning helps to ensure the business is ready to respond to those peaks and troughs. The great thing about management reporting (not just the numbers but other KPIs) is that it can help reflect, and then predict, some of those peaks and troughs. And a fresh pair of eyes can often help ensure that the correct reporting is in place and interpreted.

Landscape gardeners can help ensure all year round colour in the garden. Business owners need to achieve overall profits for the year. The challenge is that however skilled or open minded we are, our view is only one view and often we need to be shown the different perspective. Who can be your ‘other pair of eyes’?

Whether you are asking your bank manager for an overdraft or loan, or seeking outside investors into your business, you will need to be prepared and have a business plan and a Financial Plan.

Business Plan
Every business should have a business plan, whether or not they need funding, but when used for funding it will need to be in a more established format:

As well as basic company details, such a plan requires a 2/3 page Executive Summary that must capture the reader’s interest in your company by giving brief details of the business history and objectives; the management team; the market opportunity; its planned routes to market; the competition; any development plans; its IP protection; a financial forecast summary; the funds being sought and what it will be spent on. More detailed sections should then follow expanding on these headings, plus a possible appendix section to put CVs, broachers, copies of IP registration details etc.

Financial Plan
When seeking investment, a detailed three year financial plan will be required that, ideally, includes profit & loss account, cash forecast and balance sheet by month, although after the first year this can be reduced to quarterly figures. Recent historic actual results will also need to be displayed, as well as all basic assumptions used in the forecast, including sales mix, pricing, volumes etc that have been used to build your forecast. Build your model in a way that allows you to affect some level of sensitivity so that you can swiftly demonstrate what an x% drop in sales would mean to the business, a question often asked by would be funders.

Once you have achieved your cash injection, use this forecast as you next year’s budget, and have your future monthly management accounts compared to it with any significant variance being investigated against your forecast assumptions, and learn from why things are different.  Make sure that you intimately understand the Plan and Forecast, as you need to be able to confidently answer any question about it.

Whether you are asking your bank manager for an overdraft or loan, or seeking outside investors into your business, you will need to be prepared and anticipate all the information that you could be asked for and understand the implications:

Business Plan
Financial Plan
Due Diligence
Term Sheet
Dilution
Valuation
Legal Documentation

Taxation
Other than in respect of taking out an ordinary bank overdrafts or loans, it is always wise to consult your tax advisor at every stage along the way to try and ensure that the potential/eventual outcome has the most beneficial outcome for you and your fellow shareholders. There are also tax schemes that encourage investment (EIS) and these should be considered whenever possible, not only to secure that investment, but to make for happy investors.

Support
Whatever funding route you take it will involve a lot of preparation, detail, procedure, negotiation, legal jargon and most of all time to achieve a successful outcome. A FinanceHead can not only ease that burden by managing the transaction for you, but explain to you at every step along the way what it all means to you and the effect it may have on your business. Being seen as being in control of your business should enhance an investors’ view of value and give them comfort that their investment will be well managed.

Within business there are often jobs that we hate doing, can’t make the time to do or don’t have the skills for. When we finally get around to recognising that we need expert professional help to sort the chaos it does of course cost us more than if we had kept things under control along the way. And that’s without thinking about the business impact of not having the right information, working inefficiently and so on.

Once every 3 years I recognise that my garden hedges are so out of control that I need to get a professional in to sort them. They now look great and I wonder why I lived with the chaos for so long. This year I found a fabulous new, good value, supplier and have vowed to get him annually in future and keep things under control.  Do you need to make a similar vow in relation to your business’ finances?

There is a natural order for doing things, to produce the right results. A rifle can be fired before aiming, but to hit the target it is always best to aim first!

So why is this often ignored in SME’s? If an SME has a business plan it often has been written for a third party, and is stuck away in a drawer somewhere. Perhaps “strategy, mission, vision, goals and objectives” are seen to be jargon used by corporates and not applicable to them.  However without these in place how does the company where to aim? As Lewis Carrol said “If you don’t know where you are going, any road will get you there”

A FinanceHead will be able to explain business planning in layman terms and have a box of tools to get to your mission, vision and most importantly the objectives for coming year. Once these have been agreed, a set of measures can be put in place (including KPI’s), that can be reported, evaluated and actioned every month.

The objectives from the business plan are tracked every month, so that they are integral to the business rather than visited once a year. In these times, when everyone in business does not have enough hours in the day, these procedures help focus on doing the important rather than the urgent!

Ask a FinanceHead to help you aim before you fire!

Written by:
Alan Jones
t: 07817 379793
e: alan.jones@ajim.co.uk  
w: www.ajim.co.uk
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Gardens need rain, which has been conspicuously absent in recent weeks (might even be into months). I have been really grateful for my water butt and the fact that I have been able to do the essential watering and increase the chances that I will still get a healthy crop of vegetables

Many businesses are seasonal, or just experience ups and downs, which can provide challenges. These challenges can be even greater if unforeseen due to a lack of planning and forecasting. None of us have a crystal ball but we can use past information, and our ambitions, to get good estimates for cashflow forecasts and even staffing plans.

The future isn’t predictable, but some possibilities are foreseeable, and reserves (of water or cash) should be gathered where possible so that the impact is controlled.