Tuesday 15 December 2009

Cash in For Success: Lesson 5

"Credit control" is the discipline and function of controlling the amount of credit your customers are getting from you. It exists to ensure that your customers do not take more credit from you than you want to give them.

In this short article I just want to cover the bit of credit control relating to chasing for payment. So I thought it might be helpful to outline some ideas for what you could put in your credit control procedures. The specifics may be different for every business, but some of the general themes should be helpful to all businesses that allow customers to take some amount of credit. (Because of this, when I refer to 'you' doing things, please assume I mean the royal you, including the credit controller, bookkeeper, management accountant, finance manager, financial controller!)

1. Remind the customer about invoices just before due

If you are supplying products in volume, so that you are constantly sending out invoices, then you should send your customers a statement of invoices not yet paid, every month or maybe even every week.

On a set day every week, make a list of all the customers that will have invoices due for payment within the next 3-7 days (depending what you think is best). Give them a courtesy call. Now when I say a "courtesy call", that's exactly what it should be - courteous. You are not chasing for payment in this call, nor are you raking up the fact that they didn't pay the last one on time (necessarily). So the call should be pleasant and without pressure.

The purpose of the call is to, a) ensure that the customer has received the invoice; b) check they have processed it fully and there are no problems with it; and c) find out when they expect to be able to pay the invoice. Don't expect the customer to give you a firm promise at that stage (if they do that's a bonus, and something you can hold them to). You are just trying to get a rough idea for your cashflow forecasting.

2. Politely remind the customer about unpaid invoices just after they are due

On your credit control day each week, make another list of customers whose invoices have only just gone overdue in the last week.

This call is the same in tone as the last one - very easy going and polite - but this time try to get some sort of commitment to a payment date, preferably in a matter of days.

3. Chase by phone two or three times at weekly intervals

Your other lists will be made up of customers whose invoices are further overdue, and are also past the date they promised on the last call. At least at this early stage, there is no need to call a customer who last week promised to pay in two weeks time!

The next two or three times you call the customer about overdue invoices, you will be reminding them of promises made, and asking them politely to make new promises, but without making threats or warnings.

4. Warn them when an escalation step is about to be reached

By "escalation step" I mean a point at which you turn up the heat! That means either the point at which you start charging late payment interest, the point at which you make contact higher up in the company, the point you stop supplies to the customer, or the points at which you start various steps of legal proceedings (including formal insolvency/bankruptcy proceedings). That's probably roughly the order to step up in turning up the heat, and you should give the customer adequate time to pay between each step.

You will still be asking for commitments for payment dates at this stage, but at the same time you will be telling the customer when you want to be paid, i.e. immediately. Their promised date does not have to be accepted, and you will be giving them deadlines and chasing and escalating immediately deadlines are missed.

5. Always carry out your threats

Treat customers like children (in that regard only!). If you don't do what you say you are going to do (escalate to the MD or start legal proceedings), then you will never get customers paying on time, because they will never take your threats seriously.

6. Be fair and continue to love doing business with your customer

Be absolutely fair, legal and reasonable in everything you threaten and do. Unless they are very bad payers you may reasonably want them to buy from you again. So don't be rude or aggressive. But don't wimp out on collecting your cash either.

7. Finally, get things in writing

Always keep written records of each contact with the customer, including promised payment dates and reasons for late-payment. Always record what you have threatened, so that you remember to carry out the threat if necessary. And for the more serious escalation steps (stopping supply and taking legal action) make sure that you have informed the customer in writing, even if you have informed them in some other way.

All the best!

Wednesday 2 December 2009

Cash In For Success: Lesson 4

Last time we were privileged to have Edwina Taylor, an expert in the field of credit risk, pass on some excellent advice on using credit reports, setting credit terms and credit control in general. I hope you found it useful.

We have two more lessons to go, as we look at how we can get cash in quicker. This time I want to look at two administrative issues that can trip you up, and next time I'll outline roughly what I see as a good credit control procedure. Then after that... well, I haven't thought that far ahead yet!

There is a kind of logic to the way I've been approaching this. Up to now we have majored on the issues to consider before you get to invoicing the customer/client - forecasting, credit limits, knowing your customer. This time we'll look at invoicing issues. Finally, we look at procedures once invoices have gone out.

What are the invoicing issues that can delay payments? Sometimes administrative issues can delay customers paying you. I have seen both sides of this - in other words, as both a supplier trying to get paid, and as a customer being asked to pay. And sometimes the administrative issues are genuine, and sometimes they are being used as delaying tactics. And sometimes it starts off with a genuine issue, which the customer's accounts team capitalises on to keep hold of your cash a bit longer. (Yes, it's your cash, not theirs, if the invoice is overdue. And seeing it as your cash will help you have the right mindset when chasing for payment.)

I just want to give two examples of where administrative sloppiness can cause delays in payments (actually, it may be better to call it "lack of attention to detail" or weak procedures, since "sloppiness" implies a criticism. Sloppiness is only a fair term where you know you should do something and you don't do it, or you can't be bothered, or don't see the point).

First, if the details on the invoice are incorrect then the customer is within their rights to query it and ask for a replacement invoice. An invoice is a legal document, with certain essential elements. If a customer may feel they will run into problems with tax (corporate or indirect/VAT) if they book/pay an invoice that is not legally correct. So they are entitled to an invoice that contains the right elements - whether that be a VAT registration number, the correct company name or specific wording in the description.

Some customers will be good at coming to you immediately to point the problems out and sort things out immediately. A lot of customers won't be so forthcoming, and won't tell you until you start chasing for payment. So make sure you know what an acceptable invoice would look like to the customer, and set your procedures so that you and your staff produce them like that.

Second, make sure you send the invoice to the correct person or department. Obviously this is particularly relevant to bigger companies, where the person you deliver the product or service to may not be one who processes the invoice for payment. If you don't send the invoice to the right person, address, department, email address (or you don't send it in the right format - paper or electronic) then, stating the obvious, the customer won't pay you because the right people won't know to pay you! And you potentially won't find out you made an error until you find they have not paid by the due date.

Make it a priority to make a relationship with a contact within the customer's finance and/or accounts payable team. People will normally go the extra mile for people they know and have built up a good relationship with, and they will normally be more honest too.

To sum up, if you have got all the invoice details right and are talking to the right person, then it will make chasing for payment so much easier.

And it's the chasing for payment procedures that we will come to next time.

Please let me know if any of these issues affect you, and if you have any tips of your own for getting round administrative issues with invoices.

All the best!

Thursday 19 November 2009

Getting Feedback is Both Helpful and Risky

Hi

Just wanted to share with you a recent experience, where I learned a valuable lesson.

I have been considering whether it would be worthwhile setting up an internet-based offering to help small business owners/managers with financial management. From talking to a couple of people in business it seemed as if there may be some interest in having a site where you can get access to helpful tools, resources, templates, checklists and courses, coupled with the availability of someone like me on the phone or by email. It seemed a good way of giving access to financial management help much more cost effectively.

So I followed some advice. I thought, before I design and develop this I'm going to ask people what they want, and find out what they would find useful. So I designed a survey using my free SurveyMonkey account!

I then sent a link to the survey to CF&M subscribers. I also posted the link on three discussion forums on LinkedIn.

The feedback I got was so varied, it shocked me and depressed me for a little while at least. This is the first time I have done a survey, so I kind of expected that I wouldn't have done it perfectly. But I was still a little disappointed with my efforts when a couple of people very helpfully pointed out one or two glitches. I was still very grateful to those people for pointing them out though, as it gave me a chance to correct them straight away.

On the LinkedIn forums feedback was very direct. One person complained that the survey was "rubbish", which then led to others jumping to my defence and pointing out that that person had not read the survey correctly or gone into it with the right attitude. On another forum the survey was described as "well-conceived"! Interestingly, whilst I was quite hurt by the "direct" comments in the first, it actually generated so much discussion that it spun off lots of really helpful ideas, and was the most active of the three LinkedIn discussion threads.

So, what are my learnings?

First, it's good to get the ideas from your target market before diving in to develop something new. The survey is not closed yet, so I haven't fully analysed what it tells me, but so far it has thrown up some pleasing confirmation of the idea, and a quite different idea of what would be more or less valued.

Second, when you "put yourself out there" you are taking a risk. You have to take the rough with the smooth. Some people are going to love it, some people will hate it. You have to learn from all the feedback, not just the bits you like. It doesn't mean you have to agree with it, but just listen to it, understand it, assess it and decide what it tells you.

Third, when surveying it is best to test the survey first with a close and controlled group. Their specific remit is to give you feedback on the survey itself, as well as completing it. They should hopefully find where there are glitches, and where the questions are not clear or easy to address. Once you have listened to, and addressed this friendly feedback, you are in a much better position to collect the views of a wider group.

Finally, strangely, controversy is not necessarily a bad thing. I'm not, at this point, sure whether creating controversy deliberately would be right. That seems a bit manipulative, and lots of people would see through it. But certainly don't be put off if you make some waves. "There is no such thing as bad publicity" is a bit of exaggeration (witness Gerald Ratner!), but there is a grain of truth in it. One of the secrets of harnessing those waves would seem to be to continue to conduct yourself with integrity, and to use the engagement with people wisely to both show your professionalism, get your point really heard, and get as much useful feedback as possible.

I hope that's helpful.

If you want to take a look at my survey, and help me out if you are the owner or manager of a small business, here's the link:

Click Here to take survey

Wednesday 18 November 2009

Cash In For Success: Lesson 2

I know this looks strange posting Lesson 2 after Lesson 3, but there is a reason... I forgot to post Lesson 2! These articles have appeared in the Creative Finance & Management eZine in the right sequence. I usually post the articles on the blog a few days after the newsletter goes out, but in this case I forgot. Oops! Sorry.

Lesson two is all about doing what you can to minimise the risk of non-payment by your customers - doing credit checks and setting credit limits.

I suppose the first thing you can do is to not give credit at all! I don't see why small companies should be funding bigger companies (presuming that's who your customers are). If you have already paid for goods and services in providing your product/service to your customer, why should you have to wait any longer to recoup that spending? So, if you can, get cash up front (especially if you are providing a service) or cash on delivery.

What you are trying to do here is minimise your exposure. You are exposed if you have provided valuable products or services to your customer/client, but have not yet received payment. It's an exposure to potential loss, because if they don't pay you then you will have given away something valuable for nothing.

So what do you do if you can't get cash up front or on delivery? Well you will want your exposure to be as small as possible without restricting trading too much.

The two tools you have to help you to keep your exposure as small as possible are credit limits and credit terms. Many small businesses don't use these tools, because they either don't know how to set them, or they think they will lose business if they set them. But just think how much you would lose if you have given a big credit limit (or none at all) and generous payment terms to someone you thought would be a good customer, and then they go bust after maxing their limit. How much would the loss be? Much more than you would lose by limiting their spending power with you.

But how do you decide on credit terms and credit limits? Should you have standard terms and limits? The answer to that question is varying degrees of "no"!

Credit terms are more likely to be standard than limits. Find out what competitors and other players in your industry give. You will then have some idea of what your customers will be used to. But even then you shouldn't feel like you have to stick with those in every case. So if the standard in the industry, or for that type of product/service, seems to be 45 days or 60 days, it's perfectly fine to try for 15 or 30 days. The smaller the term, the less your exposure will be. You can, perhaps, justify this by saying, "I know that other companies will give you 60 days credit, but we're just a small company and we can't afford to be giving customers that long. And remember the reason we are better is that we are smaller and more responsive [i.e. this is another opportunity to plug your USP]."

But, having made that last point, NEVER do the reverse and use generous credit terms as a selling point. "Choose us, we let you take longer to pay!" You are obviously getting desperate if you have to do that! What you are really saying if you do this is, "I know it looks like we are selling widgets, but really we want to be your bank!" You are NOT in the business to lend your customers money, so get them used to paying you as soon as you reasonably can. And also just think about what kind of customers it will attract - the ones who are desperate for credit and therefore more likely to go bust and not pay you, or more likely to try to pay late every time as well. Not the kind of customers you want!

What about credit limits? This is more difficult. And I haven't got space to talk about it this time, so it will have to wait until next time. Sorry.

So in two weeks we will have a think about how you would go about setting credit limits.

In the meantime see if you can find a shortlist of companies, local and national, that can provide credit checking reports.

All the best!

Cash In For Success: Lesson 3

By Edwina Taylor

Despite the UK Government's interventions and the succession of recent interest rate reductions, there seems little sign of a mellowing in the commercial banks' attitude to lending to businesses. Forecasts claim that it will be 2011 before any meaningful return of confidence in the banking system. If access to external finance remains difficult to obtain, businesses will need to be vigilant in their management of working capital during 2010. All reasonable care needs to be taken in the management of trade credit.

Sound credit management can minimise the risk of a business being landed with bad debts. Obviously that risk can never be completely eliminated, even in benign trading conditions, but in these cautious times, the aim of the exercise must be to ensure that the credit offered reflects the clients' ability to repay it.

SME's must consider taking elementary steps to protect against the risk of bad or late debts, so: -

Consider what methods of payment you are happy to accept from customers. Retail businesses in particular need to be flexible here, but credit & debit card systems offer protection to the seller, which is less affected by subsequent changes in the customer's circumstances.
For non-retail transactions, consider setting a threshold beyond which an extension of credit will be conditional upon a satisfactory credit reference check.
Decide in advance what your firm's policy is to be with regard to late payments. Many firms incorporate interest clauses in their payment terms, but regardless of whether you do this, any business in the UK is entitled to charge statutory interest, currently set at 8%.
Ensure that all invoices are sent out promptly, with the name and address of the business clearly and accurately stated along with your payment terms. Many firms believe that charging interest on late payments acts as a further incentive to customers to pay promptly.
Keep an eye on outstanding invoices and chase debtors if payments do not arrive when expected.

What if payment is not forthcoming?

Send a letter to the debtor, stating or implying the consequences of a continuing failure to pay. You can always use a solicitor to write on your behalf, but there will then be further costs incurred.
You could sell your invoices to a factoring company or approach a debt recovery firm to chase the debt for you. This will relieve you of the work of pursuing your debtors, but will have costs attributable to the collection.
Court action can recover debts. In the UK, for debts of up to £15k you will go through the County Court who will allocate the claim to one of three different streams, including the small claims stream. You may be able to recover collection costs if you win.
If all else fails, then, for debts over £750, an unpaid creditor can initiate formal insolvency action.

Chasing Payments

Most businesses have heard the old chestnuts: - "the cheque is in the post", and "may I have a copy invoice". These are generally delaying tactics, but don't let it rest, and don't be afraid to insist on immediate payment.

Be diligent with processes - follow through the system of chasing debts, perhaps using a similar pattern as follows:-

Courtesy call the customer enquiring as to whether there is a reason for payment not being made;

Deal with any disputes on the order - asking for payment of those items that are not disputed, advising that the disputed items will be sorted out;

Where there is a cash flow problem agree a payment structure;

Keep records of all conversations and correspondence, email, fax, letters;

If all else fails put the company on STOP until you have been paid.

Remember unpaid bills are a way of easing your customers' cash flow problems at the expense of yours.

Credit Where Credit Is Due

Customers are the lifeblood of any business, but it is worth remembering "a sale is not a sale until it has been paid for". Extending credit is always risky and any business is taking a chance of not being paid, ultimately resulting in loss of profit, valuable time wasted in chasing the debt, and unwanted expense in taking legal action, only to be left with the bill being left unpaid.

Extending credit is like lending customers your own money. Would you advance a cash loan to a complete stranger? I guess your answer is no, but that is exactly what you are doing when you provide goods or services on credit.

Credit checking is widely used, but is it being used correctly? How do you evaluate how safe a business is?

Do you really understand the credit report?

Do you scrutinise the figures or just merely check that there has been no recent adverse activity?

Do you have a financial expert analyse the report?

Do you take up trade references?

Do you offer every customer the same credit terms?

Do you talk to the customer's Bank?

Do you check out the Directors' personal credit ratings?

If you have answered NO to one or more of the above, your business may be at risk. Risk Assessment has become the way forward. Most businesses carry out some enquiries, but the majority are insufficient.

Remember Turnover is Vanity, Profit Is Sanity, Cash Is King

Taking the risk out of extending credit is a vitally important and prudent move to adopt. See our 10 tips to help limit the risk of advancing credit accounts: -

1) Conduct a credit report for each new customer preferably backed up with a financial analysis;

2) Ensure that you ask for 3 trade creditor references and take them up;

3) Ensure you ask for a Bank Reference and that you speak to the bank;

4) Obtain an annual credit report for all customers;

5) Review all customer credit limits annually and do not be afraid to amend the terms or limits;

6) Have clear credit control policies which are "cast in stone" irrespective of the customer;

7) Include a Retention of Title (ROT) clause in your terms and conditions. It can be worth having a Solicitor draw it up for your own protection;

8) If you are supplying a Limited Company, consider obtaining a Personal Guarantee (PG) which will afford protection and allow a claim to be made against the Directors personally if the company folds;

9) Set the credit limit YOU are comfortable with not what the customer is asking for. For orders in excess of the credit limit the balance may be paid for COD or prior to delivery;

10) Ensure customers understand your credit terms and get them to sign the terms and conditions confirming their agreement.

Before you open a credit account be absolutely certain that your company understands your customer's payment system. Some companies will not allow payments to you until you are established on their system. Some companies insist on 90 day payment terms. Be sure that you agree in writing with your customer that payment is to be on your terms, not theirs. It is worth noting the day your customer runs the "cheque run" especially larger companies, government departments, Councils etc. Many only have one "cheque run" each month. You must ensure invoices are sent at least 1 week in advance of this date.

How can Frost Risk Services Help?

With our help, you can:

Know who you are doing business with;
Find out who controls that business;
Review their financial situation;
Check their credit-worthiness.

You can check the credit status of any business online with Frost Credit Checking 24 hours a day - See www.frostcreditservices.com - It's easy to use, updated daily, and comes with a solvency assessment written by a licensed Insolvency Practitioner if required. Whatever your interest in a business, we can give you bespoke reports and solvency assessments. We'll look at your options and help protect your interests, if need be.

For further information on this or any other debt related matter please call Edwina Taylor on 0845 260 0101 or 07515 334 251. Email edwinat@frostbr.co.uk

www.frostbr.co.uk Offices in Croydon, Dorset,Manchester, London

Thursday 5 November 2009

Forthcoming Article on Credit Management

I am very pleased to say that Edwina Taylor of Frost Credit Services has agreed to write an article for us, giving some tips on setting credit terms for customers and on how to get paid on time by your customers.

The article will be posted here late in November 2009, but if you want it hot off the press then subscribe to the Creative Finance & Management newsletter by giving us your email address in the sign up box on the right of this page.

Cheers,

Andrew

Friday 23 October 2009

Great Marketing Website for Independent Professionals

I've recently discovered a web site that I have found really useful. It's called Action Plan Marketing. It's a site for Independent Professionals who are not so good at marketing their services and want to be better at attracting clients.

The site contains a huge amount of free information and also sells some great products. I signed up on their Fast Track to More Clients Programme, and it is the most useful guide I've found for marketing my services.

It is incredible value for money - just the manual (which you get to download) and the e-course itself would be a "no-brainer" spending decision. But you also get access to a coaching conference call every month, an online discussion forum, recorded and transcribed interviews with top experts, as well as loads of samples and templates.

If you are an Independent Professional (i.e. a coach, trainer, consultant, accountant, or any other service provider) I recommend you check out the site and make sure to get the free Marketing Plan Workbook and first chapter of the manual. This link will take you there: www.actionplan.com.

Thursday 22 October 2009

Cash In For Success - Lesson 1

So, cash is king. If you want good cashflow you speed up your receipts and slow down your payments. Simple! Well, perhaps simpler to say than to do. And the payments side of the equation is actually a lot easier to improve than the receipts, because you have control over payments. You have the money and you will decide when to pay it out and how much to pay. The receipts side of the equation is under someone else's control, namely your customers or clients. And just like you, they can decide when to pay and how much to pay. That makes it difficult for you trying to manage your cash.

In fact I would say that getting customers to pay reliably on time is one of the biggest headaches a small business will face, if not the biggest. But there are things that you can do to reduce the problem, even if you can't quite eradicate it. Let me encourage you. I have seen a small business, with less than £10m turnover, reduce its overdue customer invoices to a handful. It takes persistence and concentrated effort, tough credit control and good honest communication with customers. But it is possible to get good control of your customer receipts.

Over the next few editions of CF&M I am going to give several tips that will help you to do this. It's possible that you have heard these things before, but cashflow is so important that it bears repeating.

The things I'll cover will include:

Credit checks
Credit Limits
Getting details right
Invoice timing
Credit control procedures
Chasing invoices for payment
Payment methods

But first I want to re-emphasise the importance of cashflow forecasts. Cashflow forecasts do not need to be complicated. But they are invaluable when you are trying to make sure you keep enough money in the bank. They give you confidence in the payments you are making, because you know how much cash will be left for the future. It gives you a chance of building up cash reserves to make an investment in new equipment or similar things. It shows you whether there is capacity to take money out of the business in dividends or bonuses. And it gives you early warnings of any problems that you may want to seek help with from your bank or investors.

One of the barriers that small business owners sometimes come up against in doing cashflow forecasts is that they don't know how to set one up on a spreadsheet. They don't have the confidence to do it. If they had a template they might be able to have a stab at doing it.

Well, if you subscribed to the Creative Finance & Management newsletter, you will have no excuse! You will have received from me a free cashflow forecast spreadsheet template.

If you haven't yet subscribed and you want the template, then go to the top of this page and in the sidebar there is form where you can input your name and email address. This will add you to the mailing list. You will receive an email to confirm you want to join the mailing list. After you have clicked on the "opt-in" link, you will receive an email with a link to a download page. On that page are the two free full-length articles I give to all new subscribers, and the cashflow forecast template will be on there too.

Got it? OK. I won't give you too many tips here for completing it. I think it's quite self-explanatory. Just fill in the yellow boxes. Why don't you spend an hour or two giving it a try to see how you get on?

Ok, my only three tips to get you started:

Start by going through the lines that don't relate to customer receipts or supplier payments (by supplier payments I mean payments of invoices that are on your AP/purchase ledger). Those are the hardest and you will get a lot of encouragement by getting the easier ones ticked off first.
When you forecast customer receipts you will need to have your up to date debtors list handy, and first go through it and make sure that you forecast the receipt of everything currently owed to you. Then forecast your sales (including VAT) and predict when those forecast sales will be paid for. Then add them to the receipts you have already forecast.
Use exact numbers wherever you can. But don't get hung up on getting it down to the last penny. You need to be able to update this every week in less than an hour. There's a balance to be struck. If you are estimating everything just to get it done, then you need to slow down and make sure you think about where you can possibly put in something more exact. If you are spending hours sifting through purchase ledger invoices to check payment terms and exact amounts, then you should probably step back and consider whether you will actually see the big picture any more clearly for all that hard work.

If you take this seriously I guarantee that two things will happen:

a) You will learn something about the financial dynamics of your business that will help you make decisions. You may even yourself adjusting some of your actions and decisions as you go through the exercise. And,

b) You will gain confidence in the payments you have to make and the actions you need to take to get customers to pay.

I'm interested to hear how you get on. Let me know at newsletter@charisfd.com.

Monday 5 October 2009

What are the Basics of Managing Small Business Finances?

I’ve been reflecting on the articles I’ve sent out in the Creative Finance & Management newsletter. Some of them have a bigger company feel to them, and if you own a smaller company you may be feeling like I am not saying anything relevant to you.

I am also conscious that although I am trying to say things that are relevant to businesses with turnover between £1m and £25m, in reality the difference between businesses at £1m and £25m are huge. And the difference between businesses with one or two employees to those with over £1m turnover is also fairly large too.

We tend to talk about small business as if it were one category. But small business is actually more diverse than large business! (It makes me wonder how we can talk about an “SME sector” when we lump the one-man bands in with the £100m complex group.)

I have also met quite a few people running sub-£1m turnover businesses who wish there was some service like Charis FD’s to help them with their finances. Watch this space! It is on my radar and I hope to come up with something in the next few months.

But in the meantime I have been trying to think about what I could say to help small businesses of all sizes. What are the basics? The fundamentals? What are the financial management principles that will keep you on the right course from the tiny beginnings to the multi-million pound success story?

If you have read the full length article that I sent you recently – “The Essentials of Financial Management in Small Businesses” – then the points below will not be new to you. If you haven’t read that, I would commend it to you. You can download it by clicking on this link:

http://www.charisfd.com/page11/page11.html

In summary the basic principles that apply to everyone are:

1. You have to make a profit

2. Cash really is King

3. Have a plan and know what’s coming

4. Stick to the plan

5. Review your progress very regularly

6. Never spend more than you have to

First, you have to be making a profit. If you don’t make a profit in the long term you would have been better off if you stopped doing business. Ok, in the early days you may start off with losses while you are winning customers. But if you don’t make a profit quickly enough you will run out of money. Investors and lenders don’t like putting more money into businesses that are not profitable.

So don’t ever lose sight of that. Don’t ever say to yourself, “oh well, I’m still in the loss-making phase.” Instead, ask yourself, “how can I get us profitable more quickly?”

Second, if you run out of cash your business is finished. Cash is like the fuel in the car. Once it has dried up, the car is going nowhere. If you are trading at a loss, at least you are still trading! If you have no cash, you are not trading at all.

So get your customers paying on time, don’t hold too much stock, don’t pay suppliers too early (and make sure your credit limits are adequate by being a good payer), and make sure your business is properly funded by doing cashflow forecasts.

Third, planning is essential, whether you like it or not. You have to know where you want the business to go and what you want it to achieve, and then ask yourself how it is going to achieve it. And do that with detailed questions until you know exactly what you need to do.

Many businesses fail because they didn’t have a plan.

Fourth, stick to the plan. Obvious point, but worth making. A plan is pointless if you are not going to follow it. Make sure it is detailed enough to follow, but flexible enough to allow changing course if it’s not working as well as you thought.

Fifth, measure your success against the plan. That’s a positive and a negative. You must measure your success against the plan. But you should not waste time measuring things that don’t tell you how well you are performing against that plan. Your plan should include every important element in moving the business towards your visionary objective.

There are some things you always need to look at: Your income statement each month, your balance sheet, your debtors list and your cashflow forecast.

Other metrics you need to define and decide on for yourself, because they should relate to your unique business and your unique plan. Just ask yourself how you will know whether the business is succeeding for each key element of your plan.

Finally, following on from the point about making a profit, don’t spend more than you can afford. Easy to say. Not so easy to do.

It’s all about challenging every piece of expenditure that is proposed, whether it is in the business plan or not. Is it really necessary? Could it be deferred? Broadly speaking, if the spending does not either help to keep you in business or contribute to increasing your profit in the future, then it is not going to help your business. So don’t do it. Sometimes this is a subjective judgment, and you will not really know whether you got it right or wrong. But simply committing yourself to that frugal mindset will mean that you are probably going to get it right mostly, and you will have a more profitable and more successful business because of it.

Work within these principles and you will be more likely to succeed than 70% of small businesses out there, in my estimation. I hope you succeed!

Tuesday 22 September 2009

Claiming Back Foreign VAT

Do you have EU suppliers outside of the UK? Are they supplying you with goods or services on which they charge VAT?

If the answer is yes, and the scale of the supply is significant, then you should probably get advice from your tax advisor or accountant. You should be able to reclaim all that VAT, so put that in perspective if you are concerned about the amount you will pay your tax advisor to ask the question.

In fact, if you are selling or buying anything overseas (or to/by an overseas company), always consult your accountant and tax expert.

I'm tempted to leave it at that! But I want to be more helpful. The thing is I'm not a tax specialist. I've just had enough experience to know where some of the big opportunities (and danger areas) are when thinking about tax. So I will share with you some of my experiences on the condition that if any of the issues affect your business you must go straight to your accountant or tax advisor and ask for proper advice.

First, don't, whatever you do, try to reclaim foreign VAT on a UK VAT return! If you have been including Dutch, German, French, Irish or Italian (or anybody else's) VAT in the purchases section of your UK VAT return then you have made a boo-boo! UK VAT returns are for UK VAT! You must quickly get advice from your accountant, who will help you to make a voluntary disclosure to HMRC, which will help to limit the interest and penalties you may have to pay.

Second - OK, assuming that you have not reclaimed this foreign VAT on your UK VAT return, I should mention one other possibility. You may be VAT registered in other countries. It is perfectly possible to register for VAT in Germany, even if you don't have a company based in Germany, and even if you don't sell anything in Germany.

If you are registered for VAT in other countries, then I am going to assume that you have already sought advice on it. All I will say is that it is worth paying a few hundred pounds every year to have your tax advisor come in and look over your non-UK VAT returns, or even have a tax advisor engaged in the other country, just to give you confidence that you are doing it right.

You will find that you will get tax correspondence in a foreign language, and so it makes sense to have a relationship with somebody who is an expert in tax as well as a native speaker of the language.

But DON'T go and register for VAT in a foreign country just because I mentioned it was a possibility! Get advice from your tax specialist! And if you are squirming because you don't like paying for professional advisors, then all I would say is - factor it into the cost of moving into that market. It's not something you should cut corners on.

I once worked with a business that was registered for VAT in Sweden, and even had an advisor in Sweden. But when correspondence came through from the Swedish tax authorities, they didn't refer to their advisor. The result was they paid late filing fees and interest of hundreds of pounds, because they had not realised the letters were telling them of a problem with a deregistration document.

Are you getting the message yet?!

Thirdly, if you are not VAT registered in foreign countries, then how can you reclaim the VAT that has been added to invoices that you have paid?

In the EU there is a process you can follow under the EU 8th Directive. It is bureaucratic, tedious, laborious and very strict, but it is worth the effort if you have incurred foreign VAT of more than £1,000-ish. There are forms to complete, which are different in each tax jurisdiction. Some have to be submitted in the local language, whereas some tax authorities accept submissions in English. And you have to enclose with your claim the original invoices on which you have incurred VAT.

There are other processes in other countries too for similar sales taxes, like VAT in Singapore, or GST in Australia or New Zealand.

Thankfully there are specialists out there who can help you. Some of them, such as Meridian VAT, will simply charge a percentage of what they manage to reclaim for you. Others, and some of the accounting firms, may charge a fixed fee or a percentage. If I were to state a preference I would suggest speaking to your accountant about it first. They can sometimes be very helpful with this, and pretty reasonable in terms of fees.

One thing I will note on this, is that when I did this for a £250m turnover group that was operating in 30 countries, we found errors in invoices from our suppliers. They had charged VAT on some cross-border invoices that were supposed to be free from VAT. The 8th Directive claim would have been rejected, because the invoices were incorrect. But in actual fact it was easier simply to go back to the supplier and ask them to give us credit notes and reissue the invoices. But it needed a VAT expert sifting through the invoices to spot that this had happened.

In conclusion, I have only scratched the surface, but hopefully enough for you to see that trading overseas can be a minefield. And I have only talked about the VAT pitfalls.

Starting to trade with overseas partners or employ people overseas should not be done without first seeking professional advice from your accountant and tax advisor. It's simply too risky.

Tuesday 15 September 2009

Smallbizpod

http://www.smallbizpod.co.uk/

A site packed with advice and tips and regular podcasts for start-ups, small businesses and entrepreneurs. Worth a look.

Monday 24 August 2009

What Information Do We Need to Ensure the Business is Successful?

If you are going to be successful in managing your business, you need measurement. You need facts that tell you how well you are doing and where you need to improve. And those measures of success are much broader than just financial measures, such as profit, cash, margins, etc, however important they are.

How do you make sure that your business is heading in the right direction? How do you make sure that your strategies are working? How can you even tell if your strategies are being implemented effectively? Is profit the only measure of success? Does profit tell you anything about whether you are achieving your vision?

Let's say my vision was to become number 1 in a particular market. How would I know how close I was to achieving that? Not by looking at my profit in isolation. And just asking that question leads to other useful questions that clarify what I am aiming at. For instance, what does becoming number 1 mean? Number 1 for sales volume, turnover, profitability, customer satisfaction? Best company to work for? Most environmentally friendly company in the market? Another question would be, who are my competitors? How do I measure their position or performance? How can I get reliable information about them that will tell me whether I am number 1 or not?

And I should also have strategies to follow that will help me to achieve the vision. So, in this example, I may decide that I am going to offer the best prices in the market in order to win market share. Nothing in my financial statements will tell me whether I am offering the best prices in the market, or whether I am winning market share. And yet if I have set that strategy to achieve my vision, it will be critically important to measure whether it is succeeding.

Other things are also important to measure, things that you need to be doing well in to achieve your vision and succeed in your strategies. For example, customer satisfaction, employee engagement, risk/compliance and corporate social responsibility.

I think my point is made by now, though it may sound strange for a finance guy to say that financial performance is not everything! The point is that even if profits and cash are ultimately what you want to maximize, you have to measure other things that help you get there.

The classic way of doing this is by using a Balanced Business Scorecard. We have not got the space to go into the theory and talk about Kaplan and Norton, who invented the concept. The point I want to get across is that if you want to measure the performance and the success of your business, you have to measure a balanced range of aspects. And you have to decide what those are, depending on what your business, your vision and your strategies are.

A few things I've learned about good balanced scorecards over the years are:

The measures must consistently and explicitly link to your vision and strategy. It's no use measuring things that are not important to that, because measurement and reporting takes time and effort. So you ought to focus on the things that matter.

Keep it simple and focused. Too many measures, even if they are all relevant, will just make it too confusing to interpret, too costly and time-consuming to report on, and will cloud your decision making.

It doesn't all have to be done with numbers. Again, strange for a finance guy to say! But it's true. Sometimes, something as simple as a traffic light measure can be all you need to see if a particular factor is ok, not ok or needs some corrective action.

Use measures as both lead and lag indicators. Lag indicators tell you how you have done. Lead indicators tell you how things might work out. For example, employee engagement can be seen as how your employees were feeling when they did the survey (a lag indicator), but engagement can affect attrition and motivation in the future. So low employee engagement can be seen as a lead indicator to attrition (and therefore higher cost) and low motivation (again, higher cost and potentially higher error rates, which may affect customer service, and so on).

I once worked with a division of a big bank that had a balanced scorecard. We produced it monthly. But it had so many pages in it that it took almost four weeks to produce, only a couple of people in the management team read it all and it was impossible to review in monthly management meetings. So we revamped it, cutting it down by 50%, keeping only the measures that directly related to strategies. We also made the reporting more colourful. Sounds cosmetic, but it actually made it much quicker to read and digest. You could just look at it and focus on the red items, where attention was needed. It then also took half the time to produce every month. The effect of that was to give management more time to review the report, and more time for the Finance department to investigate some of the items further. In turn that led to more efficient and effective decision making in the monthly management meetings, and led to a more successful business.

If you don't use a balanced scorecard to manage your business, I would encourage you to think about it. It doesn't have to be huge and complex. Just think about all the different things that are important to your success, and try to find ways to regularly measure them and report on them.

Making Business Change Successful

One of the things I have learnt through being involved in big projects in big companies is the value of "Change Management". When I worked as the Finance person involved with projects and programmes costing millions in a multi-billion pound group, I was initially surprised that we employed a Change Manager as well as a Project Manager.

So if Change Management is not the same as Project Management, then what is it and what are the distinguishing features? And more importantly why is it worth reading an article about? How will it help you in your small business?

The following are just my observations. I am not an expert, I haven't read any books on Change Management. I have simply seen great Change Managers at work (people like Chris Collison), and seen the value of what they do.

Project Management relates to the best practice procedures for running projects - what documentation you need to define the project's objectives, terms of reference, scope, etc; what phases it goes through and how you manage each phase; resource management; etc etc.

Change Management seems to me to involve softer skills. If Project Management is about how to implement change, Change Management is all about how you make the change successful, so that it achieves what you wanted it to. (Change Management is also broader than projects, looking at how organizations and people cope with inevitable change, turning it to their advantage.)

Three things that a Change Management focus brings to any project, from my experience:

Focus on benefits: Whereas Project Management will focus on what we are planning to change and how, Change Management will ask why. Why are we implementing this new computer system? Why are we introducing these new forms?

It doesn't even have to be a project. So you can have Change Management, even where you don't need a formal project.

If you always keep in mind why you are doing something, what it is designed to achieve, why it will be helpful or value-adding, then you will implement the change in such a way as to achieve those benefits.

Let's face it, you don't spend thousands of pounds putting a new system in just because you want a new system (well, you might, but you shouldn't if you are concerned about the value of your business!) - you implement a new system because you think it will be beneficial.

But you have to be explicit and intentional about those benefits if you really want to achieve them.

And the value of thinking in that way is that it reminds you of other things you need to do. For example, Project Management processes will (hopefully) ensure that you implement the system you intended to. But a Change Management mindset will help you understand the things you need to do (e.g. the training, communications, process change, etc) to get the benefits you want out of the new system.

Focus on the stakeholders: Who is going to be impacted by the change or the project you are proposing? If you don't think about them then you may end up adversely affecting their ability to do their jobs. Or you may not get buy-in to your change. You'll have a new system (say) that people don't want to use because it came in suddenly and they struggle to get used to it.

So you need to think about all the people and groups of people that will be affected in some way by what you are proposing. Do you need to consult with them and ask for their ideas? Do you need to inform them in advance, so they can get ready? Do you need to train them to use new procedures and systems? Do some people need to do things differently? Are you looking for cost savings in their departments, and you need them to reorganize to get the benefits you want?

Constantly communicate: Of course, this is really the other theme in the point above. All people who are affected by change need to be involved in some degree of communication. There will be some level of consultation, information, advising, training, directing with everyone who has a stake - and at all times, listening.

Listening, I have found, is an oft-neglected part of communication. But people impacted by change know their jobs better than you do, even if you are the manager of the team or the MD of the company. And they can tell you how the change will affect them, and whether you need to modify your project to cater for their concerns, so that they can continue to do their jobs properly.

In fact, change that arises from ideas generated by the people at the "sharp end" are often the ones that get the best buy-in and are the most successful in adding value.

Conclusion: When you are looking at a big change in your business, you need to take a hard look at who is going to be impacted by the change and what benefits you are trying to achieve. Then you can communicate effectively about the change and make sure that everyone who is affected contributes positively to achieving those benefits.

Tuesday 28 July 2009

The Importance of Regular Review

The Importance of Regularly Reviewing Your Finances

I was reminded the other day that many smaller businesses struggle
with knowing what financial information they should be looking at
on a regular basis. Some don't look at any financial information,
apart from maybe their bank statement, from one year to the next.
It's kind of a surprise once a year when the accountant takes their
plastic bag of receipts (or perhaps these days a memory stick might
go with the plastic bag!) and two weeks later they sit with their
accountant to find out how they did. Those in that position lack
confidence in whether they have enough money to spend on things for
the business, and they don't know whether they can do things better.

Other owners of smaller businesses lack confidence that they are
looking at the right things on a regular basis.

So here's a simple little checklist to allow you to healthcheck
what information you are looking at on a regular basis. Apologies
to those for whom this is stating the obvious.

First, you need to place priority on keeping the accounts up to
date on a daily basis or weekly basis at the least. If the
information in the accounting system isn't up to date, then the
reports you get out won't be up to date either. So you need your
bookkeeper, accountant, accounts clerks - whoever keeps your
accounts - to regularly post invoices (sales and purchases), bank
receipts and payments on your accounting system.

Second, you need to look at a profit and loss statement every
month, at least. A profit and loss statement (accountants tend to
call it a "P&L") shows your income/revenue and costs in the last
period. One minus the other is your profit or loss for the period.
The reason you look at it as a statement is that it can tell you
many interesting and useful things that you need to know.

For example, you may get a big surprise when you see your gross
margins (gross profit as a percentage of sales revenue) are 40% and
not 60% as you thought. So it prompts you to find out what's going
wrong there. Or you didn't know that someone had ordered a
particular thing and it's cost £1000, so you go and ask them why
they needed it and why they ordered it without telling you. You
can't leave these discoveries until the end of the year!

Just one quick note, because it's not obvious to everyone - make
sure that these monthly P&Ls are done on an "accruals basis". Say
that to your accountant or bookkeeper and they will know what you
mean. The accruals basis really just smoothes out lumpy expenditure
that you pay for in one month, but relates to a different month or
more than one month - so your audit fee that relates to last year,
or your insurance that relates to every month of next year, and so
on.

Third, you need to look also at a balance sheet every month as
well. The balance sheet is just a statement showing what you own,
what you owe and what is owed to you. Looking at it every month
will help you to see trends and start to understand how to manage
your cash better. It'll give you early warning of things going
wrong with your customer accounts, your stock management or bank
accounts.

Fourth, if you are not in a cash or retail business, and your
customers normally get invoices and pay later, then you will need
to keep a careful eye on who owes you what and when it is due. So
get yourself a detailed aged debtors list (aged just means it shows
the amounts owed in age categories depending whether they are
current, overdue, very overdue or extremely overdue). I would
advise looking at the aged debtors list on a weekly basis, and
keeping it on your desk. Know absolutely what is due in the next
week and keep asking your accounts people every day whether it has
arrived. This is the foundation of good credit control, and is
critical to making sure you keep enough cash in the business.

Lastly, for now, you need to think about what other information
would be useful on a daily, weekly and monthly basis. Perhaps you
need to track your sales, revenues, order volumes, gross profits,
production quantities or whatever - the point of getting regular
information on how the business is doing is so that you know about
problems and successes as soon as they occur (and not a year
later!).

Remember, trying to manage the performance of a business without
using regular information is like an athlete trying to improve his
performance without timing himself.

Charis FD is Your Friend in Finance. We help businesses with turnover roughly between £1m and £25m, that have not completely got to grips with the finances. Perhaps they are not making enough money, not generating enough cash, or perhaps the finances are simply disorganised and chaotic. We work with the directors and owners in a flexible and affordable way to take the pain out of managing the finances, so that the business can make more money and be even more successful than it already is.

We work mainly in Hampshire, Thames Valley and Central London at the moment.

If any of the above rings true for your business, we would like to hear from you. Either email us at enquiries@charisfd.com, telling us a bit about your business and your finance challenges, or go to our website www.charisfd.com. On our website you will find lots of information, and also a contact form to get in touch with us.

That's it for this time.

If you have something that you would like us to write about that would help you in improving the finances of your small business, please let us know...

newsletter@charisfd.com

Charis FD - Your Friend in Finance

I hope that you found the New Subscriber series of articles helpful over the last two months. They were designed to cover the full range of issues that form part of our business financial management model, centred on the Business Performance Management wheel. All the areas are designed to help you take control of the business finances and manage the finances intentionally.

The purpose of doing the series, apart from giving you some helpful advice, was to do two things:

Firstly, I hoped to demonstrate that Charis FD has a rational model for business financial management, a model that makes sense and covers all the important challenges that you face in making money in your SME.

Second, I hoped to give you an insight into the role that a Finance Director can play in your business. Many small business owners have built their businesses on their own, and whilst they may have met Finance Directors they don't really know exactly what they do or why they might need one.

There is a common misconception that Finance Directors and Finance people in general are simply "bean counters". They punch the numbers into the system and tell you how much money you are making. But you will have gathered by now that there is much more that they can offer. They can help you to be clear on your strategy, to plan effectively; they can help you decide which actions are worth doing, what changes will add value; they can help you measure and monitor business performance and analyse it in order to help make effective decisions; they can help you manage stakeholders; and they can help to manage risk and put in place an internal control system to help to prevent losses and errors.

But here is the tension that you may be feeling now: You can see where your business would benefit from getting better in all the areas we've talked about. But you don't have the time or the confidence in doing it yourself. But neither do you have enough money to employ someone full-time to be a Finance Director in your business and sort it all out. And, to be honest, it may not be a full time job if your business is in the under-£20m turnover bracket.

If that's what you are feeling, then Charis FD's service may be for you. We specialise in delivering assistance to people like you in a flexible and affordable way. Our service has broadly four levels, depending on your needs and your budget. We can provide you with a programme of assistance, combining telephone and email support with a varying number of days onsite working with you. We could be with you as little as one day per month or as much as two days a week.

Our aim is to give you confidence in managing the business finances, which will lead to, amongst other things, improved profitability and better cashflow.

If you want to talk to us, we're quite happy to give you a call to talk more about your business and the challenges you face. And you may be eligible for a free Finance Strategy Review session. To set that up either email us at enquiries@charisfd.com, remembering to leave your phone number and email address; or go to our website and complete the contact form.

If you want to look back on any of the previous email newsletters we have sent, they are on the Creative Finance & Management blog.

Thanks again for subscribing to Creative Finance & Management. We hope you find it helpful.

Internal Control - 3 Fallacies that Add Risk to Your Business

This is the last in an 8-part series especially for new subscribers to the Creative Finance & Management email newsletter. Every week we are sending you an article aimed at helping you to think about a different aspect of the financial management of your business. This is in addition to the normal bi-weekly newsletter. We are doing it to give all new subscribers the same orientation to the way that Charis FD thinks about small business performance management. That way we can have confidence that all our subscribers have been given the benefit of foundational advice in all aspects of business performance management.

If you missed any of these articles, don't worry. They are on the Creative Finance & Management blog. Just look for the "New_Subscribers" tag.

These are the articles in the New Subscribers series:

1. The ingredients for success in Finance
2. Strategy and Planning
3. Business Change - implementing your strategic plans
4. Measurement and Management go together
5. Paralysis without analysis
6. Your Finance team - a valued asset
7. Stakeholder management - the importance of keeping people happy
8. Internal Control - 3 fallacies that add risk to your business

Here we go again: ...

Internal Control - 3 fallacies that add risk to your business

Fallacy number one - internal control is boring. Ok, so that's not a fallacy! Internal control IS boring in my opinion. Some of you may even be saying, "What is internal control anyway? Certainly sounds like something boring. Sounds like something that big companies with big auditors might be interested in. But not me!"

No! Please don't switch off, don't close this window and read no further!

Saying that internal control is boring is a bit like a train driver saying that railway tracks, signals and points are boring! He's right, they ARE boring! But if someone doesn't provide those key controls then the train's going to crash. In fact it won't even get going very far.

The same is true in business with internal control. Without controls, your business is going to crash unless it is unfeasibly lucky. So listen up, this will save you much pain.

Fallacy number two - internal control is technical and complex. It certainly can be, but for a smaller business it doesn't have to be.

Internal control is really all about safeguarding the assets of the business, including its cash. And just like safeguarding the assets of your home, mostly it's common sense.

So you could have physical controls, like locks on the premises, access control systems, putting your money in a safe at the end of the day, keeping confidential documents in a locked cupboard, etc.

Authorisation controls are another type of controls. Particularly important when you have employees, these controls just ensure that people get permission from another more senior person (maybe yourself) before they go ahead with something. It may be signing a contract, making an offer to a prospective customer, buying things, or paying for things. Like I said, common sense.

But have you considered that there are certain things that the same person should not be responsible for? These controls are referred to as "segregation of duties", and are mainly geared to avoiding the opportunity for fraud. For instance, if your bookkeeper opens the post in the morning, banks the money received in the post from customers, records the receipt in the accounting system and performs the bank reconciliation, then they have opportunity to make all the right entries in the accounting system but pocket the money themselves. It would take you months to uncover it.

Or another common example: A purchase ledger clerk who is able to set up new suppliers on the accounting system, record purchase invoices and make payments to suppliers, could easily set up a fictitious supplier, record a fictitious invoice and get them paid. Similarly with payroll - don't let someone set up new employees if they are the ones running the calculations and/or making the payments.

There are also review controls and reconciliation controls. These are very important too. Review controls just mean you, or someone senior, looks over something (like a bank statement) to see if they see anything unusual or suspicious. Then they sign it to evidence that they looked at it. Reconciliation controls are really accounting controls. They give comfort that the entries in the accounting system are grounded in facts verifiable from external evidence. Proper reconciliation and review controls make fraud very difficult.

So the simplest reconciliation control is the bank reconciliation. Any person with any experience in finance, from your bookkeeper to your FD, will tell you that this is the most fundamental. In it you are showing that the bank balance showing in your accounts reconciles to your actual bank statement balance. It probably won't agree to your statement, because you may have written a cheque that has been recorded as a payment but not presented by the payee yet. That's why we say that it "reconciles". Reconciling items are adjustments that need to be made to show that the accounts reconcile to the external evidence. If those reconciling items don't make sense, perhaps because they are too old, then something may be going wrong and further investigation is required.

You can do a reconciliation wherever you have external evidence. So the bank reconciliation relates to the bank statement. You can also do supplier statement reconciliations to give comfort that all purchase invoice entries and supplier payment entries in your accounting system are correct.

Fallacy number 3 - it's something to leave to my FD and my auditor. Your auditor may check up on internal control once a year in order to get comfort that they can sign off their audit opinion on your accounts. Your FD (if you have one) is probably the one to whom you have delegated the worry about it.

But internal control, legally, is the responsibility of all directors - with joint and several liability. So it is something to work together on, supporting each other.

The thing about internal control is that it is restrictive. It says to your employees that they have to go through certain hoops before they are allowed to do things, or they have to put a signature on something to say they've done something, or they have to do things a certain way. In a lot of cases, though, employees just want to fulfil their main objective - to make the sale, to finish the batch quickly, to stock the shelves, or whatever. They heave a huge sigh, knowing that Finance has said they have to count, sign, go and get a manager, etc. They may rebel because they can't see the purpose.

I have seen businesses lose lots of money because the directors left Finance isolated in those situations. They didn't see control as a collective responsibility, and they shunted the control issues to the bottom of the management team agenda (which they hardly ever got to).

Conclusion: Internal control is important. I would encourage you to think about what procedures you need to put in place to protect your business assets and cash, and to make sure that all your information is accurate. Listen to the advice of your auditor, accountant and bookkeeper. As the business gets bigger and you delegate more and more authority, the more structured you will need to be.

But please don't write off the issue as boring, otherwise your business will pay eventually.

Thanks again for subscribing to Creative Finance & Management. We hope you find it helpful.

Stakeholder Management - the Importance of Keeping People Happy

This is number 7 in an 8-part series especially for new subscribers to Creative Finance & Management. Every week we are sending you an article aimed at helping you to think about a different aspect of the financial management of your business. This is in addition to the normal bi-weekly newsletter. We are doing it to give all new subscribers the same orientation to the way that Charis FD thinks about small business performance management. That way we can have confidence that all our subscribers have been given the benefit of foundational advice in all aspects of business performance management.

If you miss any of these articles, don't worry. They are on the Creative Finance & Management blog. Just look for the "New_Subscribers" tag.

These are the articles in the New Subscribers series:

Stakeholder management - the importance of keeping people happy

You already know this in all probability, so I will try not to labour the point, but there are many relationships involved in running your business. A lot of them you could call stakeholders. Stakeholders are people or entities that have an interest in your business.

The term is used really to make it clear that businesses do not just exist for shareholders - those who own the business. There are other people and organisations that are affected by and/or interested in the success of the business. They can also affect the success of the business, and you need them on board to help you achieve your vision. So they should be given some attention as well.

If you want examples, stakeholders would be the likes of: customers, suppliers, shareholders, lenders, bankers, employees, local residents, landlords, insurance agents, recruitment agencies, HMRC, pensions providers, auditors, tax advisors, corporate finance advisors, company secretary, non-executive directors, other board members, (maybe the media, your competitors and industry regulators could be others).

Here is another area where you need to be intentional and analytical. Relationships need to be managed. You can't leave them to chance. If you are not managing these relationships right now, why not? Is it because you don't like others interfering in your business? If that's the reason then here's my suggestion for a mindset change - why not see these stakeholders as your teammates, with different skills, abilities, expertise, network contacts, access to funds, wanting your business to succeed and ready to help? Twenty heads are better than one?

And when I say that relationships need to be managed intentionally, I am not saying that you have to be on the phone every week to every single person you identify as a stakeholder. But you have decide intentionally whether you are going to give them any attention and if so, how much and of what sort.

So here's what I think you should do now:

First, brainstorm a list of the stakeholders in your business (and I mean each one, not each category - so each customer and each supplier). Then, for each person or organisation, make a note of:

What do they get out of your business?

Why is your business important to them?

How would you classify their relationship with you (customer, supplier, advisor, investor, etc)? There could be more than one answer.

What do you and your business get out of them?

What else could you get out of them?

How important is this relationship to the success of your business (rate 1 to 10 or High, Medium, Low)?

What is likely to happen if they didn't like you (and on a scale of 1-10 how disastrous would that be for the business)?

What could happen if they liked you more?

How good is your relationship with them (1-10)?

Given the importance of the relationship noted above, how good should your relationship be (1-10)?

What is your relationship strategy for this person or organization (actively develop, regular update on business, mine for leads, no proactive management, etc)?

Finally, there are some stakeholders that are so important that they need extra special attention. Those would be shareholders, customers, lenders, employees, (perhaps some key suppliers and contractors), landlords, bankers and auditors. If they withdrew their funds or their services, or published an adverse comment about your business, you would be stuffed! Perhaps it's worth thinking whether a little bit of extra effort on your part might keep them happy. Perhaps you could give them a little more information than they request, or phone them with an update when they haven't asked, beat deadlines, offer a tour of your facilities, etc. Some things don't cost anything, but they buy lots of goodwill. You never know when you may need them to be understanding!

The next CF&M new subscriber newsletter is the last one, and we'll be looking at internal control - 3 fallacies that add risk to your business.

See you then...

If at any stage you want to talk to us, we're quite happy to give you a call to talk more about your business and the challenges you face. And you may be eligible for a free Finance Strategy Review session. To set that up either email us at enquiries@charisfd.com, remembering to leave your phone number and email address; or go to our website and complete the contact form.

Thanks again for subscribing to Creative Finance & Management. We hope you find it helpful.

Your Finance Team - a Valued Asset

This is number 6 in an 8-part series especially for new subscribers to the Creative Finance & Management email newsletter. Every week we are sending you an article aimed at helping you to think about a different aspect of the financial management of your business. This is in addition to the normal bi-weekly newsletter. We are doing it to give all new subscribers the same orientation to the way that Charis FD thinks about small business performance management. That way we can have confidence that all our subscribers have been given the benefit of foundational advice in all aspects of business performance management.

If you miss any of these articles, don't worry. They are on the Creative Finance & Management blog. Just look for the "New_Subscribers" tag.

These are the articles in the New Subscribers series:

Your Finance Team - a Valued Asset

If you have read all the articles that we have sent to you in this new subscriber series, you will hopefully have learnt something not only about managing business performance, but also about the skills and expertise that professional finance people can bring to your business. So I'm actually not going to labour on about the value of finance people and accountants, as the title suggests.

What I am going to do is try to get you thinking about what resources you might need in your Finance function. Perhaps there may be areas you haven't thought of. And if I can help you to get your Finance function fit for purpose then your business performance wheel will turn a lot more smoothly and you will be more successful.

I'd like to think about the Finance function as a set of resources consisting of processes, systems and people. People operate processes, and systems help to facilitate and automate processes. All the elements interact with each other.

Let's think about how Finance functions develop as a business grows, as that may indicate the priority of various elements.

The first thing you ever employ an accountant to do is to set up your company and then prepare and audit its annual accounts and tax computations. This is almost universally true of small businesses - even I have an accountant who does that for me, and I'm a qualified accountant myself!! This is what I would call the compliance requirement.

Above a certain threshold the law says you have to have an audit (if you are trading through a limited company), so you will never get away from a relationship with an external accountancy practice. But you may get to the point where you have the expertise in house to prepare the accounts and save money on their fees! Only the very very big companies have internal tax people, and even they still spend money on tax advice from the accounting firms.

In the early stages you record all the transactions yourself. After a while the business gets too big for you to cope with that, and so you employ a bookkeeper. You also have an accounting system. This is the transaction recording requirement.

In the early days your accounting system may have been a book, a file or a spreadsheet. Then you may have got a proper package like Sage or MYOB. Perhaps you've now got to the stage where you've moved onto something more flexible and with better functionality - like Microsoft AX, Great Plains or Navision.

The key things about your accounting system are that it is there to help you meet both the compliance requirements (holding proper accounting records, and doing VAT returns), and to help you measure your business performance. It becomes a key enabler of your business performance management wheel. If you want information out of it to measure your performance you have to be able to put accurate base data into it somehow. And that's where you need to have a look at the transaction recording processes and see whether you have a problem with GIGO - "Garbage In Garbage Out"!

Back to the growth story... So you're employing a bookkeeper to record transactions in a system, but you are writing the sales invoices yourself and paying your suppliers with your chequebook, your business debit card or through internet banking. At some stage that gets too onerous, so you take on an accounts clerk or two. They take care of the operational finance and control requirement.

So you may now have a Purchase Ledger Clerk recording the supplier invoices and preparing payment runs for you to authorise. You may also have an Invoice Clerk, preparing all the sales invoices to send out. On a part-time basis you may also have a Payroll Clerk or outsource the payroll to a bureau. Between them they could also take care of the bookkeeping requirements, but you may then want an accountant to make sure that all the operational finance, control and transaction recording processes are tied together.

I added the word control in with operational finance to indicate that once you delegate your invoicing, recording and payments, you need to have controls to ensure that people are doing things correctly. This is even more true when you are employing more people elsewhere in the business, since they will need procedures to follow to spend money or commit the business to contracts. I will talk more about this in my eighth article in this series. The point for now is that transactional controls are guarded by the Finance team on your behalf.

By this stage you are normally struggling to get information out of the system to measure the performance of the business if you try to do it yourself. If you are taking note of what I've been saying in previous articles then unless you are a whizz with Microsoft Excel spreadsheets, database queries and pivot tables, you will probably already have an in-house accountant doing reports for you. This is the business performance management requirement.

So you see, whilst I have been talking about business performance management constantly in these articles, I do understand that there is a lot more to the core Finance function. And these core activities need to be managed properly and grow with the business.

Conversely, these weekly articles may have opened your eyes to how much more can be built on your core Finance team in order to help you to manage the performance of the business.

At some stage of growth the business will need a Head of Finance or a Finance Director, a fully qualified accountant with a few years of business experience, to help you manage the full range of core finance (compliance, transaction recording, operational finance and control) and business performance management activities. Has your business reached that stage yet? Have these articles opened your eyes to how much more you should be doing to manage your business performance?

For many businesses there will be a stage where they have a small Finance team and know they need to do more in the realm of business performance management, but they cannot justify the cost of a senior Finance person or think there wouldn't be enough work for a full time role. The fledgling Finance team also probably needs some guidance and direction from someone more experienced.

That's where a flexible service such as the one offered by Charis FD comes in handy. We can provide advice and hands on support in all elements of business performance management, including helping you manage your Finance team, on an ongoing basis. And we can do that by being on site with you anything from one day a month to two days a week or more. Have a look at our website for further details.

Thanks again for subscribing to Creative Finance & Management. We hope you find it helpful.

Tuesday 15 December 2009

Wednesday 2 December 2009

Thursday 19 November 2009

Wednesday 18 November 2009

Thursday 5 November 2009

Friday 23 October 2009

Thursday 22 October 2009

Monday 5 October 2009

Tuesday 22 September 2009

Tuesday 15 September 2009

Monday 24 August 2009

Tuesday 28 July 2009

Internal Control - 3 fallacies that add risk to your business

Stakeholder management - the importance of keeping people happy

Your Finance Team - a Valued Asset

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