MAKING SENSE OF LIMITED INFORMATION
A small specialist distribution company can be very hard to manage. The Managing Director (who was also the majority shareholder) found it very difficult to understand his cashflow and identify spare cash in his business. The business has both seasonal work variation and also random fluctuations between large and small orders. In addition the accounting function was very basic, providing compliance with HMRC reporting and little else.
After discussing his problems at a network group, a contact of his suggested that we might be able to help him unpick his problem.
We carried out a review of the accounting processes and business information, and produced an analysis of some historic transactions. These underlined how variable his business could be. We also considered what changes to accounting processes would be needed to produce better management accounts, and found the cost would be prohibitive for his size of business.
We addressed his concerns on two levels. Firstly we suggested some ways of dealing with larger orders to smooth out his cashflow and reduce some of the troughs he had experienced, so his cashflow would actually be better. Secondly we developed a profit indicator tool which used leading indicators of business activity to give a simple visual output to describe whether things were getting “better or worse”.
By holding a regular quarterly review of the data together, we were able to provide more reassurance as to the direction and performance of the business, and discuss the cashflow implications of various proposals to increase future sales.