Insight

Make your finance application stand out

Published on June 6, 2016

Business plans that successfully raise money  contain three elements:

Clear information

It’s not just demonstration of revenues and profits before tax. Clear information shows you where that revenue and profit comes from, how many customers you’re selling to, and how much you’re selling including by unit, not just price.

Realistic information

By conversing with each department, you will gain a clear understanding of how your business is performing, get their commitment to the plans and so represent your information realistically.

All the information

Make sure you display all the necessary information. You need to demonstrate how you are turning the profit you make into cash and a balance sheet. You need more checks than just the balance sheet: in the spreadsheets include how you validate them.

When approaching an investor, you need to prove your business. The “Gold Standard” is all about information and the information that you provide will be the difference between success and failure.

Our video explains more.

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Crowdfunding: how to really make it work

Published on May 3, 2016

Crowdfunding has emerged in recent years to enable businesses to access funds more easily, from a wider range of individuals. But gaining access to more people isn’t a guarantee of success. You still have to sell the benefits of investing in the business. So your presentation must still address the core aspects of any business venture:

  • Is it going to be something that other people want to buy, at this time, at these prices?
  • Do the directors have the necessary skills?
  • Is it profitable,
  • Will it be worth a lot of money in a few years?

The current experience of crowdfunding indicates that you need a big hitter, ideally a known investor who will agree to invest around 25%-30% of your target before others will follow

But there’s another way of enticing people to invest because crowdfunding allows you to add other benefits to the traditional ones listed above. Selling a few shares for small amounts means that you can give benefits that are common with customers to the investors. So your customers become your investors. Not only do they have a share in your success but they have fringe benefits such as access to limited editions or chances to meet designers.  And these benefits encourage them to spread the word to other new customers. A real win-win.

Our video explains more.

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Managing profit AND cash

Published on March 24, 2016

It may seem obvious to say that profit is the difference between buying and selling goods or services. But the need to manage payment terms in order to make profit can be overlooked.

One of our clients was an importer of electrical equipment. The owner and the purchasing director saw an opportunity to switch suppliers from Taiwan to China, and get the same quality goods at half the cost which would double their profits. Without an FD, they ran into cash flow problems, and their bank manager suggested that they call in interim FD assistance. We found that:

  • The company had built up a good working relationship with their previous supplier, who invoiced them 50% on shipping from factory and 50% 30 days later. The new supplier, who didn’t know them, demanded the usual 50% payment on placement of order and 50% payment on shipping from the factory;
  • The previous Taiwan supplier shipped goods in 20 foot containers, while the new Chinese supplier shipped goods in 40 foot containers. Rather than pay for empty container space the company ordered twice as much and so they still had the same amount of cash tied up in stock as before, which would take twice as long to convert into sales;

This company had invested more than they intended and eventually got a better return on its capital. But getting there wasn’t as easy as they thought. Cash really is king because unless it is properly managed you won’t achieve your goals.

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Understanding seasonal cashflow

Published on March 10, 2016

There is a saying “look at your turnover for vanity but look at your profit for sanity”. Finance Directors prefer to say “look at your cashflow for peace of mind”. As soon as a business gives or receives credit and/or invests in stock or equipment there is a significant difference between profit and cashflow. For businesses with a peak season for delivery of their goods and services, the impact on their monthly cash balances is even more significant. One of our clients wholesaled fireworks. Whilst there was an underlying level of business throughout the year (for weddings and birthday parties) the two key dates were Bonfire Night and New Year’s Eve. If they did not get the goods into stock six weeks before each of these two dates, they would miss the sales opportunity for another year. So it was essential to manage profits and cashflow so as to finance the purchase of goods at the right time. Presenting information to the board and lenders that had realistic timescales and met all the lending criteria was essential to their success.

An even more time critical example is those companies who offer annual subscriptions. Normally the cash comes in once a year, and the revenue is recognised in twelve monthly instalments. Frequently such organisations have a seasonal peak in subscription dates, and sometimes they have one fixed renewal date for all customers. In the latter case, payment 12 months in advance boosts the cash balance but care needs to be taken to ensure that the advance portion (often described as revenue in advance) is reported every month. Even though this is less than the actual cash, knowing it will give you peace of mind.

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Credit control process: hints and tips

Published on January 14, 2016

Businesses don’t fail because of a lack of profits, they fail because of a lack of cash. So it’s vital that you maintain links with the customer after the goods or services have been delivered, so that you get paid on time. It’s one of the “boring but essential” things to do and so it’s often overlooked or not well managed. January, when people have been closed for a few days or even a few weeks, is the worst time for cashflow.

Here are our tips to keep the cash coming in:

Always be polite but assertive, firm and straight. Asks for specifics and clarify answers. Keep notes of conversations, including the name and job-title of the person you spoke to. If you can’t get a straight answer ask to speak to someone higher up.

Send invoices as soon as the sale is made. Some businesses schedule supplier payments based not on the date of the invoice but the date they receive or process it. Sending invoices at the end of the month can push them into the following period’s payment run, meaning you get paid at least a month later. In extremis, this could consume cash equivalent to 120% of one month’s turnover, once VAT is taken into account.

Whatever the customer says, do not send the invoice to anyone other than the accounts department. Send it anywhere else and you have no control over how long the invoice sits in a pile on their desk. This risks even longer delays than not sending the invoice promptly in the first place. By all means run off a duplicate, clearly mark it COPY and send that to them, but address and send the original to the accounts department.

Make sure the invoice includes:

  • A PO number if the customer’s system requires it (ask them don’t assume that just because they haven’t given you one doesn’t mean that they don’t need it);
  • The name of the person who will approve the invoice for payment – this makes it harder for the payments section to claim ‘it’s not yet approved for payment’
  • A clear description of the products and services provided;
  • A clear statement of the payment terms and due date. If this is contractual, speak to accounts payable or it will just go into the system and get paid when it suits them, which almost certainly is not what you were expecting;
  •  A statement that you reserve the right to charge interest under the Late Payment of Commercial Debts (Interest) Act 1998. No one charges this but it makes the point that you’re serious about cash collection.;
  • Your bank account details including IBAN number and SWIFT code if the invoice is going abroad;
  • The VAT number, company number.

Phone up the customer’s accounts department within three day of sending. This gives you the chance to make sure they have received the invoice, all is in order i.e. they have ALL the details that they need. Go through it line by line on the first time that you invoice a customer, point out any contractual payment dates, check who will approve it for payment and that it will be on the appropriate payment run.

If the payment is late call and remember to be polite, clear but firm. Inform them of any charges that your company will enforce (like a Statutory Late Payment Interest at 8%, for example).

In conversations, ask for confirmation and specifics, try and get promises not evasions. Some assertiveness now will make it harder for them to wriggle later. Keep dated record of conversations and processes they make. Follow up by email, It’s easier to apply pressure if you can get them to make promises you can quote back to them.

Look out for holiday periods. Work seems to stop at the end of the second week of December for example, not starting until, at best, the first full work week of January. So accelerate chasing processes in December and persuade them to get you money on the pre-Christmas payment run.

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5 tools all SME owners should use in 2016 and beyond

Published on December 11, 2015

In order to grow a business successfully you need to know where you are going, how to get there and what to do when you do! You may be overwhelmed by the number of apps that can help you do this so we at Flexible Directors have drawn up our own list of  5 essential tools that will do this.

  1. Corporate Cashflow Calculator

This is the smartest app to show you where your finances are going. We should know because we designed it! Using our knowledge of finance for growth we designed this app so that new businesses and growing ventures can estimate their cash requirements for 1 and 5 years in a about 30 minutes. Input annual sales volumes prices and margins along with salaries, overheads and the time it takes to pay and get paid and immediately you can see how much cash you will need to realise your ambitions. It’s available for both Apple and Android devices.

 

  1. Rockstars App

It takes a lot of skill and courage to create a successful business. There are many pitfalls to be avoided and by talking to a mentor you are almost sure to avoid them. Rockstar Mentoring is the UK’s leading mentoring organisation because all its mentors have “been there, done that and got the t-shirt”: each of them has built and sold at least one business and this experience is available to you via the soon to be launched App or via its website and membership.

 

  1. Skype for business

In order to get there you need a team that knows what it’s doing. It’s not long before quick chats or hollering across the tiny office won’t do and you need to talk to people properly and frequently, all the while without taking them away from vital tasks for any longer than absolutely necessary. For video conferences, Skype remains the app to get. It’s effective for conversations with telecommuting colleagues, international corporate partners and, indeed, anyone else who you might encounter. The app is available on iOS, Android and Windows Phone, and the iPad and now allows you to share data from other apps without leaving the conversation (in iOS 9.).

 

  1. Dropbox for business

As you grow your business, you are likely to have to store more and more documents. Thankfully, Dropbox is a great platform for doing this safely and cheaply since it uses the cloud. There are also free trials for you to try beforehand

 

  1. WealthBeing

If you want to know when you will have got there, use the WealthBeing tool which allows you to calculate how much profit the business should make in order for you to be financially independent, and realise all your ambitions. Just list your monthly spend as well as education costs for your children, a house (maybe two) and the treasured possessions and once in a lifetime experiences that you’ve dreamed about, and the tool will work it out for you.

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The 7 functions of an FD

Published on September 5, 2015

 

Your Finance Director is a key member of your senior management team. The right one will remove barriers to your growth and have the gravitas to inspire confidence in investors and stakeholders. In SMEs they think strategically, act commercially and are highly analytical. They are just as comfortable contributing to Board Meetings as they are getting into the detail and helping their team achieve their goals.

Drawing on our 20+ years’ experience in providing flexible FDs to SMEs, we believe that there are seven functions that your FD can perform.

Function What your FD should do
Act as a sounding board Be the confidante of the CEO
Listen empathetically and provide financial intelligence and wisdom
Think strategically Ensure that financial plans are aligned to strategic objectives
Identify opportunities for increasing value
Act commercially Ensure that all significant contracts enhance the cash flow of the business. Negotiate them where appropriate, especially with the raising of debt and equity and sale of the business
Provide visibility Show the effects of new projects
Develop financial models that are accurate accessible and complete, showing changes to value and cash as well as profit
Report clearly Intelligently assess and present the results of the business
Ensure that everyone understands the results and what they mean for the business
Relate results to key non-financial data
Control the finance Make sure that there are systems in place which safeguard the assets without strangling the business or alienating its customers
Be the focal point of budgets that are ‘owned’ and understood by department heads
Control risks and mitigate as far as possible
Lead the finance function Understand the capabilities of the finance team and, where appropriate, mentor and develop them. Build and adapt systems to get more accurate data faster
Work with advisers to get the best additional advice from them

 

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How to treble the value of your management accounts

Published on August 15, 2015

Do your management accounts comply to the norm, showing any or all of these shortcomings:

  • Too late
  • Backward looking only
  • Missing cash flow statement or balance sheet
  • Lacking an insightful commentary 

Or even worse, do you not get any at all?

Our expert part- time finance director team at FD Solutions is passionate in its mission to improve management accounts value for clients. This is how we do it:

Sales analysis Hopefully, ‘Sales’ is the biggest number in the accounts. So why does it invariably appear as just one line? At FD Solutions, we like to analyse sales over product/service, by fee-earner or sales person. Let’s map the trend in a graph, or perhaps better yet, with a Moving-Annual-Total that removes the vagaries of seasonality
Reflect business drivers Do your accounts reflect the things that actually drive the business? Whether it be your google page-rank, sales call/enquiry volumes or new sites found for a roll-out business, often non-financial measures will tell you what the accounts will show long before the first invoice is entered. But do they form part of your Business Intelligence? They should
Integrate to forecasts Do you know what the final year out turn will be, working at the current run rate. That’s what the FD Solutions integrated forecasting system gives our clients
Cash flow “Sales are vanity, cash flow is sanity” goes the old saying. Some business structures absorb cash as you grow. So the faster you sell, the faster the cash disappears. We model cash flows and report on them so you can see where the money has gone
The commentary How often do we hear “I don’t understand my accounts”? Too often. There is quite an art to writing plain-speaking, well presented commentaries. Our Client Directors are trained and practiced in the art of writing an insightful management accounts commentary

The corollary of “what gets measured gets done” is “what is not measured does not get done”. When was the format of your accounts last reviewed in those terms? A good finance director will design, deliver and adapt reports to focus on the key performance indicators of your business.

Call us to find out how we can treble the value of your management accounts.

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10 ways to increase turnover

Published on July 7, 2015

 

 

Sell more to existing customers

Sounds fatuous, of course. But it’s surprising how often a current customer is not aware of the full range of products and services of a supplier, particularly where product portfolios are evolving.

Retrieve lapsed customers

Find out why they deserted you. Entice them back. Make sure you address any negative feedback though.

Review sales prices

Compare to the competition. Consider when they were last revised. Experiment with some time-limited promotions to see whether discounts will result in additional cash margin.

Review sales discounts

Sales staff are often very cavalier giving discounts away, sometimes unnecessarily. It makes their life easier and the impact on their commission is negligible.

Review sales commission schemes

Apply the adage ‘what gets measured gets done’ and its corollary, ‘what doesn’t get measures doesn’t get done’. Odds-on that some digging will identify sales behaviour other than what was intended, usually to the detriment of the business.

Analyse, analyse

Which products are performing (and which are not)? How has that changed over time and why? Which staff are performance the best and worst?

Increase sales with bundles

A real-life example: the business sold fruit trees. Things were OK but not great. Until the idea of a care-bundle was conceived. To make sure the tree delivers a proper crop, the bundle comprised a root-boosting fertiliser, a stake plus strap and an animal guard. The individual components of the bundle were soon out of stock, having previously sat on the shelves for an age.

Sales lead conversion rates

Do you know what they are? Do you know how they differ across the sales team? Is there capacity in the sales team to process more leads?

Closing the sale

Study ‘close’ rates on sales. Is there a training need? Or do some sales staff need replacing?

Internet

Make the most of the internet.
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Rules to follow when increasing debt

Published on June 20, 2015

This article appeared in the Real Business magazine

Arcadia’s owner paid himself a dividend through debt. Should you borrow more?

When Philip Green paid himself a £1.2bn dividend last year, he wasn’t creaming off profit. The cash came from a seven-and-a-half-year loan from HBoS. Because Arcadia is making £300m profit a year and Green owns 92 per cent, the bank thought nothing of providing Green with some upfront cash. But can small businesses be similarly creative with bank debt?

Private equity houses have been “doing a Philip Green” for years. They use bank debt to pay themselves huge dividends soon after buying companies. Last year alone they siphoned off £12bn using this technique. Michael Shulman of Jade Securities, the mergers and acquisition brokers, says smaller enterprises are now copying this tactic. “Low interest rates mean it can make sense for companies to increase their borrowings. We are finding that these funds, in addition being used for dividends, are also topping up pension contributions. Other companies are looking to purchase freehold properties for their own occupation.”

But what about entrepreneurs themselves? Don’t expect banks to let you do a Philip Green. You need a lot of noughts after your name to have that clout. But there are many other attractive uses for the banks’ cash and the trend among bigger companies towards leveraging the company’s balance sheet is easier to copy if you can make the business case.

Mike Burton runs Albany Washroom Services in Essex, a fourth-generation family company of which he is majority shareholder. With a credible expansion plan and compelling reasons for bankers to support him, Burton believes his best strategy is to borrow money to expand. “Turnover is expected to grow very quickly with profits to follow, but I’ll be investing in an increased sales force and equipment for my new customers, so I need a bank which has innovative ways of financing this.” And Burton is willing to put his own money where his mouth is to get the deal – investing his personal capital alongside the bank to show his level of commitment.

Burton seems to epitomise the entrepreneur willing to take on more debt to pursue a dream that he’s confident of achieving. His company will increase its market share, he’ll retain his equity control, and the bank will recoup its money. All this in a solid industry that has been around for years.

Shulman says tactics like Burton’s are becoming increasingly common as banks search for more imaginative ways of offering finance. “Contrary to the traditional image of the imposing and unapproachable bank manager, today’s bankers really do want you to call them,” he says.

How much debt you should saddle yourself with is a tricky question. There are no metrics or golden rules. My advice? Borrow as much as the bank will lend you, but not so much as you can’t sleep at night. Wing Yip, the entrepreneur who has built a £70m-sales Chinese supermarket chain, advises you to secure as much as you can, but never draw down more than 50 per cent.

If you fancy increasing your debt, here are a few tried and tested techniques for getting your hands on the cash

Rule one: don’t limit your enquiries to your existing bankers. It’s a competitive marketplace out there, and banks are hungry for new customers.

Rule two: do limit yourself to banks whose managers will give you a direct dial phone number for ongoing contact. Ten minutes being told by a recorded message from a call centre in India that “your call is important to us” is not the best way to foster a working relationship.

Rule three: have a credible business plan. My firm prepares loads every year, and bankers give a warmer welcome to businesses that demonstrate a well thought-out future – and financial projections that portray the bank getting its money back!

Other suggestions? Show the bank you’re contributing alongside them. Maybe you’re taking a low salary to help the company’s cashflow, or perhaps, like Mike Burton of Albany Washrooms, you are willing to invest personal capital as a show of commitment.

A bright bank manager will have other suggestions for improving your working capital availability other than debt. But remember that they only earn money when they lend to you. So pick up the phone and put the banks to the test.

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