Archive for category Business Management

Building a Cash Management Culture

Do you manage cashflow or do you just rely on being careful?  Do you have a formal strategy for improving cash flow?  Do you have a cash management culture?

These were questions posed to members of the Business Exposure Group at their recent meeting.

82% of business failures are as a result of poor cash management.  60% of businesses have inadequate cash flow.  In many industries cash is difficult to access which creates problems for you to remain competitive, maintain financial stability and pursue growth.

But, how do you encourage a cash flow discipline in both good and difficult trading times.  Do you link compensation to achieving specific cash flow targets?

During the meeting our members came up with the following points:

Use email to send invoices rather than post, this should speed up billing and collection.

Reduce error rate on invoices.

Don’t wait to invoice at the end of the month, and have a regular schedule to follow up on all collections

Ask for a deposit or milestone payment.

Incentivise customers to pay faster by offering discounts.

Exhaust current stock and delay expenses.

Request better supplier payment terms.

Finance purchase orders.

Sell or lease idle equipment

Turndown or postpone work

Don’t pay early, pay electronically and on the last day the payment is due.

Sometimes more flexible payment terms can improve your cashflow more than a bargain basement price, so don’t always focus on the lowest price when choosing suppliers.

Arrange a line of credit from the bank, even though you don’t need it immediately.

Ask suppliers for extended payment terms.

Ask you best customers to accelerate payment.

Offer clients fixed rate retainer packages for some of the work, this way you get paid up front.

Suggest payment by monthly direct debit, instead of by cheque.

Offer finance as part of your product package to ensure that you get paid on time.

Operate a ‘just in time delivery’ to eliminate dead stock.

Offer discounts on lower demand products.

Source items from low cost countries, but beware you may need to pay upfront and buy in large volumes, so it may be false economy.

The popularity of financial software has made cash management easier, but as difficult as it is for business owners to prepare projections it is one of the most important things that have to be done.  But, does an educated 3 month cashflow forecast work in reality, and should you continually review your projections? All members agreed that you should have a line by line projection for every significant outlay in the month.

A further problem is managing cashflow in a seasonal business which is never easy.  You need to clearly identify the highs and lows of the yearly cycle and be confident that your projections are realistic.

One of our members commented:-

‘To our surprise we were called by our bank for a meeting shortly after we filed our annual accounts.  We were seen as high risk, despite being profitable, having sales growth and cash in the bank.  We were told that we would have to pay higher interest rates and would have restricted access to funding.  The problem was inadequate cashflow.  So, we reduced debtor days by 5 days (75 to 70) and inventory by 15 days, which improved our negative cash position by 60% and restored our relationship with the bank’.

This subject created a lot of debate amongst members of the Business Exposure Group and they went away with additional ideas of how to improve the cash management in their businesses.

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Are you controlling growth – or just letting it happen?

Part of any business owners dream is to have rapid growth and an influx of business.  But increased demand puts pressure on your systems, people and cashflow.

So, how do you handle an influx of business?  Have you been able to maintain the same level of customer experience?  Have you made any changes in how you service your customers?  Do you have a strategy for growth?

This was the topic discussed by members of the Business Exposure Group at our recent meeting.

Some of the barriers to growth are – lack of business plans / muddled marketing / running the business in the same old way / meddling and misspent time / wrong objectives based on just sales / no financial strategy and poor controls.

Check your systems, processes and procedures are up to date and adopt a proactive management approach with a quality control system where everyone uses the ‘same scripts’.  The ability to grow must be influenced by your willingness to devolve certain decisions to staff.  You must have a strategic plan for the short, medium and long term growth of the business.

To achieve growth – invest in ‘safe bets’ / identify strategies with a good probability of success / start with core business and eliminate secondary products on a regular basis.

Good information equals good decisions.  Can you deal with a sudden influx of orders with no way to fulfil them?

First of all spend time finding out what is causing growth and understand why your company is suddenly getting more business, as this is could be important to many of your future decisions.  It is also important to understand the reasons why business is slowing down.

One way to overcome barriers to growth is to invest in staff development.  Try to plug the skills gap in your business to move your business up a level.  Identify staff responsibilities and make sure you employ and retain the right people.

Be careful not to expand too quickly, look at whether you are growing to be more profitable or is it growth for growths sake.

Many fast growing companies change their goals too often; they never quite complete a plan before starting the next one, and because of this will get into all sorts of difficulties when business growth stalls.  It’s important to retain the culture of your business when taking on new staff.  Be careful not to let them dilute the personality of your business.

Ask yourself when looking at growth:

  • Do I have the qualities and diversity of people
  • Do I have systems in place
  • Do I have the ability to delegate
  • Do I have enough cash

And finally, ensure that it is not your mind set that is holding your business back.

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Planning for a downturn in Business

Strengthening your business doesn’t just involve financial management, it includes strategies to maintain and broaden your customer base, keep morale high amongst staff and improve business practices.  Chamber of Commerce figures show that three quarters of SME’s are concerned about the economy but few have plans in place to protect their business, if business takes a downturn for the worse.

Have a plan which outlines a comprehensive menu of cost savings which could be implemented in a downturn.  Adapt products to be more suited to customer’s current needs, diversify to protect from the loss of a significant customer.  These points were posed to members of the Business Exposure Group at their recent meeting.

Cash equals survival, does this need to take precedence over profit if business goes awry.  Having a contingency plan to produce short term profit, despite a drop in revenue, can make all the difference.  A decline of 10% in revenue could wipe out the entire bottom line and most companies have a relatively narrow margin for error.

So it is important to develop your forecast on optimistic, realistic and worst case scenario basis.  But, who does?  Businesses generally fail because problems are noticed too late, so thinking about vulnerabilities and opportunities early on can be a big advantage.

Identify and maintain your strengths and your best customers.  Identify your highest-margin customers and understand what you are doing right for them.  Instead of cutting costs, be ready to shift resources to retain high margin customers and continue to be creative in how you can add value for your customers without increasing costs.  Look through your costs and identify what’s inefficient, what’s nice to have, what’s there historically, and what isn’t creating value like it used to.

Be ready to take a knife to anything that isn’t adding value.

So, how recession proof is your product or service – is it a necessity or a luxury?

Quite often banks have a level of credit granted but some levels may no longer be required, which may mean you should move them to other areas.  If business is good consider increasing your line of credit and establishing new credit facilities, even if you don’t need them at present.  Perhaps look into unconventional sources of finance as a fall-back.

Look at speeding up working capital to release cash.  If sales fall can you respond so as to avoid excess stock?  Review your sales forecasts, keep an eye on your stock inventory and reduce the number of slow moving products.  Look at other sources of income such as sub- letting part of your premises.

Review and delay your expansion plans and the purchase of high ticket items.  Categorise your company’s assets into, underperforming v high performing, and strategic v non-strategic.  Try to lock prices with your suppliers to stabilise margins.

Look at buying optimistically or defensively a competitor to stop them falling into the hands of another competitor.  Monitor advertising by competitors, if they are cutting down now is your chance to do more.  It’s equally important for your business to find new markets.

In conclusion, the best time to prepare for a downturn is when the company is operating well.  Plan ahead so that if needs be you can react in a controlled fashion.

Above is a snap shot of the comments made during the discussion at the Business Exposure Group meeting.

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What is included in the ideal monthly Management Pack?

This was the topic discussed by our members at a recent meeting of the Business Exposure Group.

As a business you need to know how you are performing.  Should the management pack consist of a one page summary, or should it be more extensive, and what should be included in it?

Most businesses include KPI’s/ Action plan and corrective action/ Profit and Loss showing period against the budget/ Aged Debtors/ Staff headcount/ Cash at bank/ Capital expenditure / Cash Flow forecast.

These are all essential pieces of information needed to enable you to get an overall picture of what is happening in your business at this particular moment.

The figures should be monitored on a regular monthly basis, say 5 days from the month end, with time set aside in the diary to study them and ask questions.  This is the best way to monitor your working capital and decide whether you need to invest more time in chasing payments.  Armed with the information you can get the business to perform better – control costs/ improve margins/ boost cashflow/ reduce risk through better management.

Management accounts are used to help plan and control activities of the business and to assist in decision making.  Information should be shared with staff members, as it will help them understand where to focus their energy and avoid big surprises at the end of the year.  Often visual graphs make the figures easier to understand, and can highlight both positive and negative trends.

Information can be obtained to identify seasonal differences, plan dividend payments and other remuneration.

One of our members felt that his management accounts produced figures that were too focussed on the present, but it’s up to you to interpret them and spot trends.  Consider burn rate, ie how long can you last if no more sales were achieved beyond those already known, therefore unnecessary costs must be dumped.

Looking at management accounts should not be seen as an additional administrative burden.  All this information is there to help you decide about – adjustment of stock levels, hiring of extra staff to meet demand, investment in marketing, discounting or discontinuing certain product lines or services.  Nowadays with the common use of Xero accounting software there is no longer a need to wait a full month before knowing the financial position of your business.  The use of accounting software allows companies to produce information on demand.

Our Business Exposure Group members were all aware of the value of regularly reviewing their management accounts and agreed that they were important for the business to progress, but some felt they did not give sufficient attention to the definitive information available.

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Motivating staff without huge salaries

How to motivate staff without paying them huge salaries was the main topic for discussion at a recent Business Exposure Group meeting.

It’s easy to find an employee but not easy to find help.  Help is when you pay money and get back more than you laid out.  So, how do you attract the right employee?  Don’t hire people on a recommendation or just because you know them.  Take time to select the right person for your company, and let them loose so that they can do what they do best.

The usual job ads don’t work – ‘salary commensurate with experience’ is boring, ‘competitive wage’ ie, you pay the same as everyone else – will not attract amazing people.  Good candidates want – no management, no bullshit, and no idiots – that would attract great people.  So, come up with your own unique version to attract good people to your company.

As an employer you must not play God, employees do not like being talked down to, nor is it good for motivating them.  Bad bosses bribe their employees with high salaries.  Amazing bosses motivate their staff by saying ‘this is where the company is going’ and ‘let me take you on a journey’.  Only give pay rises commensurate with the success of the business, don’t bribe staff to stay – they must be motivated.  Create a ‘map’ and show employees what they are working to achieve.

Make your staff feel they are part of the success.  Does putting KPI’s on the computer so staff can see how well the company is doing in comparison with last month, energise and motivate your staff, or is it dangerous if the business performance takes a dip?

Have you got a good environment for people to work and flourish?  They will be motivated to do better if they are recognised for going that extra yard.

So, how do you ensure that your staff want to be part of your business rather than just turning up every day with an attitude that they are making you money and not seeing anything for themselves.  They must buy-in to being part of the bigger picture.

Don’t hire people to do the jobs you won’t do.  It begs the question why would someone else want to do it?  Mundane jobs are okay if you introduce some variety, consider flexible working practices.

Giving people a job title often limits the role they carry out, eg receptionist – only answers the telephone.  That is probably not a fulltime role.  Everyone should share the job responsibility, but this only works if staff are motivated,eg techies who are happy to deal with customers.  Keep staff motivated and have a share in the collective work.  Get staff to do a bit of each other’s job when needed, ie to cover absence.  Introduce cross-training.  Employees like to do more and be involved.  Staff will take pride in their work if they feel part of the business.  Also clients like to talk to people who know about other areas of the business and can add value.

Good employers have a vision of what needs to be done, which is not done by having rules.  Employees should be following your vision and solving problems, not obeying rules.One of our members who has a cutting edge business explained that ‘the fact that other businesses hate that we exist’ is what makes my staff excited and motivates more than pay.

The younger generation enjoy the competitive environment but this is not limited to financial gain.  Quality of life is the big motivator these days.  It is important to move away from the boss to employee relationship towards an alliance for success.

These were some of the points raised by our members during the meeting.

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The biggest challenges Businesses face today

What are the biggest challenges businesses face today, was the question posed to members of the Business Exposure Group at a recent meeting, and below are the 10 most pressing concerns.

According to the CBI change is the new normal.

Growing revenue is the top challenge for businesses employing 5-30 employees.  Hiring employees is the biggest challenge for businesses with 30-50 employees and government regulations becomes the biggest issue for business with 50 or more employees.

What are the 10 big challenges for SME’s.

  • Uncertainty about customer trends – does this lead to short term focus, and does it make you feel vulnerable?
  • Financial Management – cash flow. Larger customers are imposing long payment terms, so how are you addressing this?
  • Monitoring performance – are KPI’s as good as they sound even though they compare historical information or are there better ways.
  • Recruiting the right talent – employee working flexibility is important to retain good staff, but increasingly stress in the workplace is a real challenge in small businesses when staff have to be able to multi-task.
  • Technology – it should be outsourced to reduce demand on administrators, but is investment in technology an asset or a handicap. Distinguishing which technology will attain the highest return in terms of time and investment is a problem.  The big issue is, is the IT fit for purpose.
  • Information overload. There are now big digital challenges for meeting the expectations of customers, together with finding and keeping people who can digitally transform a company that delivers a bespoke customer experience.
  • Customer Service – what is the right level, are customers’ expectations too high? Managing the relationship is key
  • Maintaining reputation – there is genuine concern about reputation management with easy access to social media and particular concern about cyber security disrupting the day to day functionality of the business.
  • Knowing when to embrace change is a worry and knowing how to balance quality with growth. Businesses are stocking less and relying on a lean supply chains, but is this clever or does it open up crippling disruptions.
  • Regulations and compliance are becoming more and more demanding of staff time

Everyone was in agreement that running a business is getting harder and is forever challenging, but all were motivated about the challenges and were ready to face them head on.

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Taking your Business to the next level

In today’s confusing economy many business owners are in need of a jolt – something that will help their company grow.  But what are the ways to find an edge in a crowded market, to find new ways to sell your product or services?

This was the question posed to members of the Business Exposure Group at a recent meeting and they came up with the following points.

  • Is the business truly scaleable? Is the demand for your products enough to sustain growth by focusing on either one product at a time, one new customer at a time,   one new sector at a time?  But often the key to scaling up is scaling down and become more efficient.
  • Make sure you do your market research before scaling your business.
  • Re-organise your company to serve customers better. Look at your inefficiencies and review where improvements can be made.
  • Operate with integrity; don’t let money or greed get in the way. Strive for excellence and be different.  The owner is the main sales ambassador, so get out and visit your customers.  Focus on good customer service.  Stay up to date with technology and up your marketing activities.
  • Many small businesses run too lean for too long, putting all their investment into selling, but certain inefficiencies maybe things you can get away with in the early stages, but if you are serious about growing these ‘holding you back’ issues need ironing out.
  • Don’t think just about tomorrow, at the expense of the long term.
  • For some it is easier to carry on as you are, rather than developing skills to manage and grow your business. A leader’s job is to set the vision and a manager’s job is to set tasks and look after the operation.  It is vital to position yourself correctly in the business.

Your business can either grow or stagnate, it’s your decision, but let me leave you with three interesting thoughts –

  1. Don’t become obsessed over ‘cool features’ as this will drain resources and will not increase your bottom line.
  2. Don’t over innovate because this will drive your customers away because your products and services become too complicated.
  3. Don’t wait until a product is perfect before you launch because you will have launched too late.

Remember growth is about having processes, being organised and delegating trust to others working in your business.

 

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