Archive for category business success

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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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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Has the ‘Sales Machine in your Business had its day?

Many businesses have a sales machine, designed to replicate the star performer.  But recently sales have been caught off-guard by a dramatic shift in customers buying behaviour; longer sales cycle time, lower conversion rates, less reliable forecasts, reduced margins.  Has selling become harder and why?

This question was posed to the members of the Business Exposure Group at their recent meeting and the following points were discussed.

Process driven sales fall short because it gives the sales rep no room to exercise judgement and creativity when dealing with highly knowledgeable customers.  Sales team should not just compete on price.  It is not a good idea to have a price driven quick sale as opposed to a longer sale that offers a better solution and best value.  Support your sales team rather than direct them; give them greater latitude. ‘It’s not the journey but the destination we have to focus on’.  Reward the sales team for long term focus rather than short term deal volume.  Do not let sales reps simply sell products rather than solutions, purely to boost their figures.

There is now a new world of sales

Customer has a definite need Customer is uncertain
Find someone with authority to spend Find someone open to change
Demonstrate value in your solutions Disrupt the customers thinking and assumptions

Perhaps the answer is to have adaptive sellers who challenge customers with disruptive ideas and offer unexpected solutions-‘Insight selling’.  Demand should be created early in the sales funnel rather than responding to it later on.  Instead of making the sales rep work through a checklist of sales activities focus instead on the customer’s behaviour, and let the customer acknowledge that the status quo is not working.  Verifying whether a customer is open to change is a prerequisite to pursuing a sale.  It’s not enough to do a demonstration; you need to first establish with the customer that the existing approach is underperforming and that a new solution is necessary.

Large sales driven organisations monitor sales reps by KPI’s, especially cycle times and closure rates, smaller businesses can and should be more agile and flexible.  We can track and report on a customer’s actions rather than on the sales reps activities, which would encourage the reps to focus on achieving outcomes with the best possible solutions.

Originally sales was about scheduling times with the decision maker; determining if they have a budget for the purchase and sending a proposal in writing.  Now, find out if the customer has agreed that status quo is unsustainable; does the current approach expose them to risk; how much is in their budget; can we help the customer think creatively about funding if money is not available in this year’s budget.

The Institute of Directors state that only 17% of existing sales people score high on the competencies required for ‘Insight Selling’.  ‘Hire people not in sales, but hire people who have good critical thinking and are willing to sell’.

If you used to recruit as follows –

‘Wanted experienced professional looking to maximise earning potential in a fast paced competitive sales organisation’.

Change this advert to

‘Wanted critical thinkers looking for an opportunity to exercise their judgement and assume significant responsibility for business growth’.

Businesses that continue to embrace the sales machine process are watching their margins fall.    Our Business Exposure Group members agreed that it’s better to hire good people, create an empowering environment and then get out of the way.

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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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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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How to Build Value into your Business

Other than financial . . . . . value creation is the essence of business.  Value is what attracts and keeps customers, attracts and maintains relationships with investors and suppliers who are critical to the businesses long term success.

It is a mistake to look at your business from within – better to look at your value propositions through your customers’ eyes, because the biggest differentiator on valuations of a business is the intangible value placed on business reputation.  So, therefore

  1.  Make and keep realistic promises on service, quality and delivery
  2.  Use IT to improve transaction speed and information sharing
  3.  Develop staff decision making practices
  4.  Spend more time and money on the important areas
  5.  Build capability within your business
  6.  Build enthusiasm with your staff

Value is all about creating a ‘serving mission’ for your customers.

There are 9 things that will make your business worth more than your competitors in the same industry.

1)         Recurring income

2)         Provide something different

3)         Show growth at a pace

4)         Be seen as a ‘trendy’ innovative company

5)         Ensure no customer is responsible for more than 10% of your revenue

6)         Be able to predict business conversion rates

7)         Have a second in command

8)         Be able to demonstrate happy customers

9)         Remove complexity and duplication in your business processes

If you can tick a number of theses 9 facts you are well on your way to creating and building an enhanced value for the future.

And looking to the future.  Stop thinking about ‘making products’ and start thinking about experiments.  Because it is one of the experiments which will be the one opportunity that will make your business fly!

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The Cost of a Product or Service plays no part in setting the Sales Price

Great products and services are priced on purpose.  So how do you work out the price to charge?

Although you understand your customers’ needs, we are not experienced with what to charge and often rely on intuition.

A report by McKinsey Management Consultants states that 80% of all products and services in the SME world are priced to low, which fixes the market position at a low level.

Some of the comments at the Business Exposure Group meetings raised some significant points from the members: –

1.Using the ‘cost plus pricing’ method often means that businesses a)      overlook the amount of R & D employed by the Company, and b) often    have over optimistic market projections which is reflected against fixed  costs

2.There is a benefit in having a useless price point. One member has 3 prices a) Web only subscription price of £59 per month b) Print only subscription price of £125 per month c) A Web and Print subscription price of £125 per month.

Option b) seems useless, but it turns customers from being bargain hunters into value seekers as it makes price c) look like an excellent deal.

  1. Charging 1% off the optimal price for a product can mean forfeiting 8% off its potential operating profit.
  1. Starbucks and others changed the concept of buying a cup of coffee from £1 to a drink which costs £4. They did this by changing the experience of buying coffee.  You can no longer buy a coffee.  You have to buy a caramel macchiato or a latte.
  1. Another member who sells phone systems doesn’t ask customers what their budget is for their telephone systems. But moves the buyer into considering how much time staff spend on the telephone.
  1. Another member manufactures soaps. One line was priced at £1 per bar.  It didn’t sell, so the Production Director suggested a price hike up to £6 per bar.  They all sold because the retail buyers though that the product must be a really good quality product.
  1. If a new product costs 15% more to bring to market than the old product, should you increase the price by the same 15%. This was done by one of the members who sells bar coding labels. He made a mistake because he failed to realise the benefits of bar coding over the old product.  ie, instant access to stock control, and the effect of just in time delivery.  The product was priced too low and sold well, but customers would have paid significantly more for the new product.
  1. In order to establish a price ceiling it is important to fully understand how the product or service benefits your customers. One of our members, who sells air conditioning systems, never compares competitors’ products, but explains to the buyer the impact of maintenance shutdowns and lost revenue, demonstrating that buyers will pay so much more for the product.

So, considering the above points as a starter, why is it that SME’s are planning on growing their profits by cutting costs, rather than implementing a less risky but feared alternative? Simply put up your prices, it has the least disruption.

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What should you expect from your accountants?

Research shows that 82% of business owners want more support from their accountants.  But there is a significant void between the end of year advice, which is months out of date, and strategic advice planning for the future, offered by a few but not all accountants.

The events of the past few years have led many business owners to review all areas of their business performance, including finance and cash flow.  But what is surprising though is that how few businesses have received pro-active up-front advice, support and guidance from their Accountants at a time when it has been most needed.

The question ‘Has your Accountant left you to cope on your own for the last 2-3 years’ was tabled at a recent Business Exposure Group meeting.

Below are some of the points raised during the meeting by our members.

  1. The biggest driver for advice is tax mitigation.
  1. Some Accountants talk about managing risk and setting up holding company structures to de-risk the valuable parts of your business should the trading side fall into difficulties.
  1. R&D Tax Credits and Capital Allowance claims should be on the agenda for all regular meetings with Accountants.
  1. A firm of say four partners with 20-30 support staff will add increased value.They can benchmark you against others in your industry.They can advise on appropriate KPI’s to make you understand your business inefficiencies. They can advise you on the impact of new contracts wins on the cash flow of your business. They are well connected with banks and can prepare funding reports in bank ready formats which attract a more serious consideration of your application.
  1. How to extract cash from the business in a tax efficient way using EIS and SEIS and VCT investments.
  1. The need to have a pre year-end meeting to discuss the suppression of profits and possible pension contributions in order to potentially wipe out your corporation tax bill.
  1. Whether quarterly or annual accounting is best for a growing business.

What was clear from the vast majority of business owners at the meetings was that accepting poor service because the bill is cheap is no longer a viable alternative.  To build a relationship with your Accountant towards them acting as a periodic part time FD is crucial to assist building and running a business.  Talking to your Accountant at a regular pre-set meeting about your ideas and concerns is time and money well spent to give you extra confidence when dealing with the challenges of everyday business.

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Do we need a formal business education to be on top of our business in 2015?

The current business environment is characterised by increasing competition, global trading, technology and the need for enhanced operational efficiency.  Yet we are faced with fewer staff undertaking a diverse range of complex activities.

Small business failures can often be attributed to poor management competences – So why do we have varying degrees of resistance to training?

The following comments were made at a recent Business Exposure Group meeting:

  1. Do staff take training seriously, or is it a day out of the office. Most thought that training only works well if you have a willing participant and that when they return to the office they are able to use their new skills and communicate the benefits to their colleagues.
  1. SME staff are often forced to be a jack of all trades in order to plug the skills group, which in the medium term is not sustainable.
  1. There can be fall out from training because the recipient my wish to move on to better opportunities which the SME cannot accommodate.
  1. Training at the lower level is fundamental because a business is only as good as its weakest member of staff.
  1. Many small businesses are between the rock and the head place. On the one hand desirous of a training benefit but on the other hand finding the absence of a colleague from the ‘day job’ as detrimental to the ongoing daily requirements of the business.
  1. Business education for the owner is less a job of sitting in a classroom, but rather by learning on the job with the aid of an expert coach, which will assist the owner in breaking through the glass ceiling created by their limited experience of how to move their business to the next level. A well experienced industry relevant ‘Non Exec’ is the answer for many of our members who have ambitions to significantly grow their business.

Training budgets throughout a business must be proportionate, so that both staff and the owner take equal priority to train and therefore build a strong, resilient business.

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Valuing a Business for sale or acquisition.

Let’s start by asking ourselves if we know what our business is worth. Some would answer that a business is worth precisely what someone is willing to pay for it and what we are prepared to sell it for. So arguably the only way to value it is to put it on the market.

But if we take a step back it is strange that most don’t know what their business is worth. Strange because we know all the other figures – profit, average order value, debtor days, work in progress, sales pipeline value. By knowing how to value a business can help us understand where the value lies and maximise the areas of value within the business.

Some of the comments raised at a recent Business Exposure Group meeting highlighted the following points and all add to why a person would buy a business.

1. Market Share – overnight you can take out a competitor
2. Intellectual Property – this has value but in reality it is only worth something if it generates a profit
3. Brand and Reputation creates the most important value
4. Products and Services may compliment the acquirers business
5. Supplier Relationships may be better than the acquirer has to date
6. It costs a lot to train and harness a good set of employees
7. To scale the business into a new location
8. If a PLC buys a smaller business they can instantly revalue at a higher price on their balance sheet
9. Good housekeeping is essential so that when an approach is received is doesn’t create suspicion amongst staff, clients and suppliers

Having signed contracts, ownership of your website, domain names, software licences and
up to date statutory books are all examples of well-run and groomed businesses beginning
to be ready for sale.

The best time to sell a business is when it is doing well. Don’t leave it until it is too late, ie when you want to retire, because the urgency to get a sale will result in lower offers being made.

Notwithstanding, marketing a business for sale through a business broker is the best channel to create several interested parties and bring them to the table. Nevertheless, it takes many months to find an acquirer and further protraction of negotiation whilst due diligence and legal transfer takes place.

Research shows that most businesses don’t sell because either they are pitched at the wrong price or the seller is not talking to enough serious buyers.

Finally, if you can’t cope with the business changes on the horizon and can’t envisage selling, then perhaps you are better off hiring a new MD and continue to collect the profit without the day to day headaches of running a business.

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