IN THE NEWS
Featured in an Institute of Chartered Accountants in England and Wales (ICAEW) article: Business spotlight: how to juggle a portfolio (19 June 2020)
Latest Blog – April 2021
LICENCE TO INNOVATE – DEVELOP A BOLDER STRATEGY
For those businesses that had a written strategy document for 2020, I’ll hazard a guess that very few forecast the disruption of a global pandemic and the lockdowns that arose from it. Most strategies would have talked about incremental change, gradual expansion, and maybe introducing one new product or service to market.
I am lucky enough to work with a portfolio of 12 businesses who were all very differently impacted by the events of the last year. These spanned a wide range:
- A care organisation had to focus on resources and processes (staff, PPE, safe working practices)
- Factories introduced ring-fenced shift patterns
- R&D activities and many office roles moved to working from home
- A tourism business saw a 90 percent + cut in revenue
- A hotel, and a chain of shops both had to close for several months
- Restaurants became essential food retailers and takeaways.
While government support measures have plugged some of the costs, that was not enough on its own. Necessity truly was the mother of invention. Nearly all of these businesses rapidly dreamed up and implemented dramatic changes to their business strategies in very short timescales. Changes included:
- Shifting retail sales from physical to online
- Revamping web sites and introducing online purchasing portals
- Introducing new physical delivery services
- Bringing out new products for growth markets (barriers, food packaging)
- Changing marketing emphasis from exhibitions and trade shows to e-mail blasts, social media advertising, and even traditional letters.
The take-away learnings from this last year are therefore:
- You can often achieve the unthinkable, but only if you think of it first
- It is hard to give up the status quo in favour of new ideas unless you have to
- It is OK to try a new idea that fails, as long as you limit your losses
- You are always licenced to innovate, and develop a bolder strategy.
Most of these businesses are not going to revert to how they were when restrictions are ended, they are going to pick the best elements of past and present and see how they work together.
Perhaps in the future we will allow more wacky ideas and innovations to be tried out, and see how it goes. That is likely to be very interesting – for the businesses and for their customers.
Previous Blog – March 2021
10 TOP TIPS FOR RAISING BANK FINANCE SUCCESSFULLY
For most owner-managed businesses, if you need more money you can only find it in two places. One is for you, the business owner, to invest more yourself. You may need to re-mortgage your house or sell other assets to provide the cash. The alternative is to borrow it. You could tap up your friends and relatives, but this can end in tears. Or you could go to your friendly Bank manager.
Banks tend to get a bad press, famously “renting umbrellas to people, except when it is raining.” You need to see it from the Bank’s perspective. They make money by lending money to businesses – as long as you pay it all back. They are looking for reasons to lend to you, but watching out for warning signs that they might not recover their loan in full. So how can you help them to lend to you?
Here are our 10 Top Tips for brilliant Bank borrowing:
- Don’t be a stranger. If you can cultivate a relationship with your Bank manager from the beginning, when you want to raise a loan you will already be at a better starting point. Make time to explain the business to them, and (Covid-permitting), show them around.
- No dirty laundry. Impressions count. You need to make sure that your Companies House filings are on time, you are not late paying VAT and PAYE, and you have no CCJs hanging over you. Old debentures should be scrubbed from the Companies House records. Anything else paints a bad picture of your business.
- Have good management information. You should be able to show that you produce timely management accounts and keep track of your business’ performance. This should include a balance sheet and ideally a cashflow, not just a profit and loss statement.
- Have a compelling reason to borrow. Banks like to know where their money is going, and investing in growth is more compelling than replacing losses (apart from the current Covid-response CBILs loans, where the opposite is true).
- Demonstrate affordability. The Bank manager has to show their Credit team that you can pay back the loan, with some headroom. Show them these forecasts, with reasons why the results will improve.
- Understand security. The Bank will usually want some security for their loan, whether that is a mortgage on your building, a charge on assets like book debts, or a lease on some equipment. You want to avoid giving a personal guarantee, if possible.
- Help the Bank manager do their job. They have to make a narrative report to the Credit team, so why don’t you write the story for them? This includes explaining clearly what the business actually does, the journey you have been on, and where you are going.
- People lend to People. Explain who the key people are in your business and how they will help deliver your future success. Photos will make them seem more real and approachable, and you can explain their expertise and experience.
- Gift wrap it. Putting the above points into a business plan format will make a good impression. Be available to help on the phone or by e-mail if there are last-minute queries.
- Don’t be afraid to haggle. Once you receive a loan offer, you may be able to negotiate down the charges, or the rate, or some of the terms. Probe to see which items may be flexible.
If you are struggling, you can always ask your friendly accountant to help you.
Previous Blog – January 2021
NEW YEAR, NEW HORIZONS.
DEVELOPING A SHAREHOLDER STRATEGY.
The start of a new year is a good time for a business to plan ahead and develop a new business strategy. However, if you do not start “at the beginning” you may not get to the right end point. You may deliver a good business, but not one that the owners wanted. It is vital to understand what your shareholders want, and to build up a shareholder strategy which will shape the business strategy that comes later. Different kinds of businesses have very different shareholder groups and expectations:
- Owner managed – the MD/CEO owns and runs the business, possibly with other minority shareholders;
- Sole trader – the manager is the business, there are not shareholders as such;
- Family owned – some family members (sometimes plus some non-family members) run the business, and another group of family members (possibly the same group) own the shares. This could involve family trusts or other complex ownership structures;
- Part of a bigger group – a remote “head office” owns the shares and sets aspirations and/or targets for the business to perform financially;
- Charities and similar organisations – here there are not conventional shareholders but there are trustees who oversee the organisation, and charitable objectives/purposes that need to be met.
The first objective of any set of shareholders is that the business does not fail or “go bust”. Beyond that, the shareholders may want to:
- Grow a business and then sell it;
- Grow a business and keep it for generations to come;
- Keep the business at a comfortable size so that their lifestyle is accommodated;
- Generate sufficient revenue to keep themselves employed.
Some businesses may even have a finite life; for instance a company set up to carry out a one-off purpose (a joint venture, or to create a building, or a film) and the aim is to wind it down in an organised way and distribute the proceeds.
You therefore need to understand the shareholders’ approach to:
- Return – how much do they want the business to grow its profits?
- Risk – how speculative is the management allowed to be in achieving this?
- Linearity – can you make a loss in the early term to generate bigger profits later?
- Funding – are they happy to borrow money from banks to fuel the growth of the business, or to put in more money themselves?
- Dilution – are they happy to issue more shares to other people to grow the business?
- Anything else of importance. Some owners might want to meet personal ambitions such as to have an overseas office, or to meet an arbitrary size target. You need to know this.
Only once you have ascertained these needs can you go on to create the strategy of the business to meet them.
Previous Blog – November 2020
10 TOP TIPS FOR HOUSEKEEPING YOUR FINANCIAL SYSTEMS.
If your business is working at less than full capacity, or if you are coming up towards your year end, now is an ideal time for some simple housekeeping of your financial data. Some of these will improve your quality of life, others may stimulate more business.
Here are our 10 Top Tips for timely tidiness:
- Check your system for any incomplete or unposted transactions. Sometimes these can be left “in limbo” and need pushing through to the right places. Any older unpresented items on your bank reconciliations need investigating and resolving.
- Review your aged debtor report for overdue invoices – are you owed money you haven’t collected? Can you chase for payment? Are they an indication that you are failing to provide satisfactory goods and services in your operations? Do you need to inform your credit insurers? Are they about to be excluded from your invoice discounting facility? Do you instruct a debt collection agency or start proceedings? Can you claim VAT bad debt relief? Do you need to provide for these or write them off?
- Review your aged debt report for old unmatched credits. Have you failed to produce an invoice, or posted it to another customer account? Is your customer owed a refund – could you tempt them to spend it on a new order?
- Review customers who haven’t bought from you in a while. Can salespeople contact them to understand what has changed in their business and try to rekindle the business? Do you want to reset their credit limits in case their circumstances have changed? You might want to flag them as inactive if your system allows.
- Review your aged creditors for old invoices. If you actually owe these, why isn’t the supplier chasing you for payment? Have you actually paid them another way, for instance by credit card, or a cash book / nominal ledger / proforma payment? Is this a duplicate that needs removing? You can ask your supplier for a statement or account history to check this.
- Review your agreed creditors for old credit balances. Have you paid the supplier but not received the VAT invoice and recorded the expense? Do you need to chase this down? Or have you overpaid and you are owed money you could ask to be refunded?
- Review old outstanding Purchase Order lines. If you haven’t received the goods or services, check whether you actually need them and see if you can cancel them down.
- Review old “goods received not invoiced” items. Have these been booked in mistakenly? It is unusual for the supplier not to have chased for payment. Trace these through to see if you have any systematic failings.
- Review your fixed asset register. Do you still have all these items, or have you disposed of some? It might remind you of things you own, but don’t use, and could sell.
- Check your payroll-related balances. Your Nominal Ledger balances for staff pay, PAYE, pension and other deductions should be clearing to zero after monthly payments. Check your HMRC online tax accounts to see if they think you owe what you think you owe – you might have overpaid and be due a refund!
Once you have finished this list your work should become easier and you should have improved your business’ position.