Archive for category business success

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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