Margin analysis to support loan application of a promotional materials company
A difficult start
We were invited to assist a company which produces and distributes promotional products.
We were starting from a low base – the accounting records were unintelligible, there was no budget process and the bank were at the door.
Starting with the basics
When needs must, we are not frightened of rolling up our shirt sleeves and getting stuck into getting the basics sorted out.
We worked extensively with the management accountant, getting control accounts reconciled and producing a validated balance sheet, to show where the business stood.
We set up the management accounts model, directly linked to the accounting system. As with all our formats, it was designed to highlight those key performance indicators which are meaningful for the business.
Checking the margins
Once we had produced accurate management accounts, we quickly recognised that there was one major product line which was making virtually no profit.
So the directors looked at costs, increased prices, and were able to achieve a significant increase in profitability.
The bank got confidence
Provided with a proper business forecast, and accurate management accounts, the confidence of the bank rose. Eventually the company was able to raise the funds to continue with the planned expansion of the business.
It’s now two years on
Provided with a stable background of accurate reporting and forecasting, the directors have been able to expand the business by 50%
We visit once a month – finalising the accounts, updating the forecast and meeting with the directors to assess progress and plans.
The finance department works like clockwork.