Preparing accounts is the most traditional role of a Chartered Accountant. It is also the most misunderstood work we do.
For those clients wanting more from their annual accounts process, we have within our membership of A4G have a range of improve and grow sessions without the accounting jargon that often prevents you from getting a true understanding of your finances.
For example as part of our advisory services we have the financial wealth check module which helps us assess what you and your business are worth and when you will be able to afford to retire.
For the full range of such non accounting advisory services check out the website and follow the A4G logo’s or emai me at adam@marlow-assoc.com
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( 0 / 0 )Setting targets
Management accounts should not just be about assessing how well you have done. They should also include some form of budgeting facility.
Budgets have had a bad press in recent years. We all know about government bodies desperately throwing money at projects because they have to spend their budgets. They are examples of how budgets can have a detrimental effect but if used properly they can have several positive benefits:
1. They can act as a target for the owners and managers. On this basis they should be achievable so that do not have the effect of de-motivating everyone.
2. They can be used as the basis for profit-sharing bonuses e.g. a percentage of all profits over a certain amount are shared between staff. This can even be done on a departmental basis
3. The act of preparing a budget will force the management team to consider what situations may arise in the year and plan accordingly e.g. staffing issues, capital purchases, cash flow etc.
Costs should be an investment
Many businesses focus too much on cost. Their aim is to get costs as low as possible. This can be counter-productive and leads to decisions that damage the long-term health of a business. Think of costs as an investment. Do they enable the business to earn more than they cost? Many businesses ignore small costs that add nothing to the business and cut back on larger costs that might enable the business to grow.
Key Performance indicators
In preparing budgets you will need to consider certain key performance indicators even though you might not call them that. Examples could be the average profit margin you make on good that you sell or the amount of productive labour against unproductive labour.
If you don’t achieve the overall results that you had hoped for it is important to see where you have failed and sometimes to see it in microscopic detail. Having techniques for measuring your key performance indicators is crucial, remember if you can measure it, you can manage it.
If you feel its now time to take your management accounts a step further then get in touch with us to explore this issue further.
Adam
01509 502141
adam@marlow-assoc.com
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( 2.9 / 16 )I have been explaining the business lifecycle model to a new business this week and realised how few business owners recognised whereabouts their own business sits in each of the four stages to a business: new, growing, maturity and decline.
In the first two stages, each set of annual accounts might be barely recognisable from the previous years. Turnover is increasing as are overheads and new products and services can have dramatic effects not to mention the effects of the occasional bad decision.
Sooner or later though your business will reach stage three – maturity. This is where the real money is to be made. Your customers hopefully trust you and you do not have the costs of an expensive learning curve to go through. Once there, it is up to its managers to keep it there as long as possible. If change is on the horizon and alterations need to be made, it is better to go back to the growth stage than go into decline.
But how do you recognise the warning signs of decline? You might be aware of changes in your industry but within your own business it is possible to be too close and not see problems that have built up over a number of years.
One way is to complete a trend analysis. A trend analysis will look at a set of accounting information over a long period. The trend analysis not only compares statistics from one year against the others but also compares the relationship between certain statistics e.g. growth against margins. Results can be produced in graphical form so that key personnel within the business can understand the issues involved.
This all sounds very nice but what will it tell us? On their own, graphs will sometimes tell you of problem areas such as margins falling or bad debts increasing. It is the consultation process that goes with it that will help you determine the true causes of some of the statistics. Have stock losses arisen in the same period that staff turnover is high?
Analysis does not have to just inward looking, either. For a small extra cost there are a variety of benchmarking reports available in any industry. Benchmarking involves comparing your business against other similar companies. You could compare yourself against the industry generally or just against one particular competitor. Most medium-sized and large companies use benchmarking as one of the main tools in their armour to ensure they stay competitive.
Of course we can provide a 5 or 2 year trend analysis as part of your accounting package – so if this sounds helpful just get in touch with us.
Adam
01509 502141
adam@marlow-assoc.com
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( 3 / 32 )Cash is reality
Once again this week I have been reminded of how little planning businesses undertake to ensure success and avoid problems and I am not talking about business plans or strategic plans I am always amazed at how few cashflow forecasts are prepared!
There are better and more accurate ways of producing cash flow forecasts than the back of an envelope with a line drawn down the middle and in one side and out on the other!
We can help you manage your growth and navigate your cash flow problems by undertaking our A4G advice session “cash is reality”. This contains a range of face to face improve and grow sessions to help you identify the real causes of your cash flow problems and the solutions for you.
Every business is different and it is important to recognise that the right answer for someone else might not be the right answer for you
Included in our advice session we focus on cash flow generally, managing debtors, managing stock and work in progress and finding appropriate sources of finance. What’s more if you feel that any particular session is a waste of your time, then you pay us nothing!
For more details of how our advice sessions in our membership of A4G improve and grow sessions can help your business, email me at adam@marlow-assoc.com
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( 2.9 / 40 )What if?
I had a couple of clients ask me ‘what if’ questions this week similar to these 2 below.
What if we were to increase our prices by 10%? How much business could we afford to lose before we actually had less profit than before?
What if we gave ourselves a marketing budget of £10,000? How many extra sales would we have to achieve to recoup the extra cost?
There are plenty of “What ifs” in business but how often do you sit back and calculate in detail the financial effects of certain decisions. Most small businesses are run on gut feelings and instinct, all very well with the experience that you have built up over a number of years running a business but yet another example of how the business is completely dependent on you.
What if the business is in trouble and you can’t see how to get yourself out of it? At the end of the day, every solution falls into one of four categories. Make more sales, improve your margins, reduce your overheads or take less money for yourself. We’ll assume for the purposes of this debate that you don’t want to do the last one and you have probably considered the third one so that leaves the first two. Measuring our performance and perhaps benchmarking ourselves against others in the industry are just some of the ways of helping find out what you are doing wrong.
But what if you are doing everything right for the industry you are in but you are just in the wrong industry? Sometimes it takes an outsider to see what those involved in the day to day running of the business are too close to see. A well-known pen manufacturer thought it was in the stationery business until someone pointed out that they were actually in the gift industry. Once they realised that, re-marketing themselves and increasing all their prices was easy.
At the end of the day there is no one that knows more about your business than you. You probably know more about your industry, employees and products than anyone else ever will, so you are the only person that can come up with the answers.
But what if we helped you ask the right questions and include our ideas as part of a structured advice session? Surely this would increase the chances of making this time spent more productive.
Just get in touch if you want to chat about this further.
Adam
01509 502141
adam@marlow-assoc.com
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