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Planning
Plan ahead! I cannot recommend the following viewpoint, given by a disorganised businessman… "The nicest thing about not planning is that failure comes as a complete surprise, and is not preceded by a period of worry or depression". However, I strongly recommend the alternative of regular planning and reviewing of the operating of your business. Basil Walsh said "If you don't know where you are going, how can you expect to get there?"
Ensure you have a business plan for the next 2 (and preferably 3) years
It is important to know what business you are in, who your competitors are, what plans you have to develop the business and what resources (people, equipment, capital and cash) you will need. Include budgets for the trading (P&L) balance sheets and cash flow.
Share your business plan and results with your bank manager
Always obtain more funds than you expect to need. Nobody likes bad surprises, so keep in touch with your bank manager or funder regularly.
Monitor the progress of your business regularly
| Daily |
Cash/overdraft |
Balance at the bank |
|
Sales |
Invoice sales daily, keep running totals |
| Weekly |
Debtors |
Chase slow payers, enforce credit terms |
|
Stock levels |
Are all stocks selling, any obsolescence? |
| Monthly |
Sales |
Full analyses: customers, items, prices |
|
Margin |
Cost to business of goods sold for resale |
|
Overheads |
Full analysis of all items, including accruals |
| 6-monthly |
Re-forecast |
The outturn for the year |
| Annually |
Business plan |
On a rolling 3-year basis |
Update your books regularly - at least weekly
Although it appears to be a perpetual chore, if you keep your books up to date each week, it will really save you time later on. At worst, queries are only one week old! If you have a bookkeeper, ensure that you are aware of what the current situation of the business is.
Debt collection
A sale is of no use if you're not going to get paid for it. Don't sell to people who don't pay! If a customer has a history of poor payment, consider future supplies only on a cash upfront basis. You are now able to add something along the lines of the following to your invoices and statements. "ABC Ltd reserves the right under the Commercial Debts (Interest) Act 1998 to charge interest on late payments as defined in the Act at a rate of 8% above the Bank of England base rate". This can focus the mind of the most hardened of late payers.
Business continuity
Have you ever thought what would happen if you were unable to work for three months? How would the business cope? Is there someone who can mind the business and take on your responsibilities? If the answer to these questions is "No", then perhaps now is the time to plan some short-term succession planning.
Profit does not equal cash
Profitable businesses can run out of cash! Just because a business is making a profit, that does not always mean it is increasing its bank balance, or reducing its overdraft.
Cash is King!
This is the most important statistic for every business to monitor. This can be checked daily via your bank's website.
… and finally, some thoughts for the day…
- If you're in a crisis, don't ignore it – deal with it now!
- Viability = Credibility = Approval
- If you don't ASK, you won't GET.
- If you always do what you always did, you'll always get what you always got.
- Seen over the entrance to one of America's leading companies is a sign which reads "Our job isn't making steel, it's making money". Making steel was their means to achieve this.
- What are your business's most valuable assets – and yet are never shown on any balance sheet? Your satisfied customers.
About the Author
Gordon Welsby is a chartered accountant with considerable experience as a finance director of commercial companies, including SMEs. He now runs Welsby Associates which provides financial management support to independently owned businesses on a part-time basis.
w www.welsbyassociates.co.uk e info@welsbyassociates.co.uk t 01491 671710
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