Start planning for the future with your accountant

Accountants do a lot more than simply crunch numbers. They can be trusted partners who’ll help you draw up a compelling business plan.

In the past, business planning was not an essential part of life. The small businesses we dealt with didn’t recognise the importance of looking forward and planning for the development of their company. 

Times have changed and, today, business planning is very much an essential part of corporate life. Why the transition? Well, the most common reason to prepare a plan is to explain your business priorities, capabilities and ambitions to an external lender, such as a bank. In an era of reduced access to finance and the application of rigorous lending criteria, a professional approach is absolutely essential. 

A business plan is, however, important at other levels too. It is an essential business management tool which provides a structure and guidelines for the running of your business.

From our point of view as professional advisors, assisting clients with the preparation of their plans is an ideal way of developing a close relationship with them and their staff.

The preparation of a business plan naturally involves financial information, but it also enables us as accountants to show that we are business advisors with commercial awareness, rather than simply number crunchers. A well-written plan will get behind the numbers. It will include comments on the aims and objectives of the business, as well as the personal ambitions of the owners. We will make reference to the key people in the organisation, the state of the company’s assets and planned capital expenditure.

A good plan will include observations on marketing strategies and risk management – the latter being an essential part of today’s business life. Working with clients to produce a business plan is therefore a highly rewarding and fulfilling exercise. It is also an excellent way to demonstrate how chartered accountants are trusted business partners for their clients.

Banking on the right decision

You need heavy-hitters on your side when you approach a bank with a view to getting finance for investment.

When a client needs to persuade a bank to make a substantial investment in their business, we always recommend that they get their professional advisers involved at the earliest possible stage. Unless you have your accountant on board and get some support in presenting your case, there’s a danger you may end up shooting yourself in the foot.

Banks can be notoriously difficult to impress and can fall back on a tick-box mentality when it comes to deciding on finance. They’ll look at the recent figures and overheads, but can fail to take into account the bigger picture and the great opportunities that can come with investment.

Even with our involvement, the process of convincing the bank isn’t always easy. Different potential funders often ask for information in varying formats. Sometimes banks – despite the preparation of a detailed business case – seem as if they don’t quite ‘get’ it. 

As well as a paper analysis of where the business is heading, you may need to support your pitch in other ways – video that demonstrates the advantages of technology, for instance, and tours of the current facilities. 

It’s also important to set out your stall right at the beginning. Ask the bank’s local representatives whether they are actually able to make a decision. If you know the green light will have to come from someone further up the hierarchy, politely request that they come down to your client’s site and have a face-to-face meeting. 

At the end of the day, a successful request for funding is going to come from a partnership. On the one hand, there’s your expertise and knowledge about your business and market place. On the other, there’s the guidance and advice of your accountants and other advisers, who know from experience the best strategies to employ during the negotiations.

Five ways to measure business health

Keep on top of how well your business is performing by monitoring five key indicators.

There’s an old adage in accountancy: turnover is vanity, profit is sanity and cash-flow is reality. It’s a way of saying that there are numerous measures you can apply when measuring the financial health of your business, but it’s often good to have a rounded picture.

Too often, in a lot of smaller businesses, owners see the annual accounts process as a necessity to satisfy HMRC and possibly their bank. For that reason, it can be left to the last minute. In effect, this can often be nine months after the end of a particular accounting period. So by the time they get an insight into how well their company is doing, the information is no longer up to date.

My advice is to talk to your accountant about receiving management accounts on a monthly or quarterly basis. Then, you need to start looking at the following key indicators:

CASH-FLOW

Everyone talks about it, but how many people really understand its importance? The balance of the money flowing in and out of the business needs to be positive and you can only achieve this with accurate, up-to-date forecasting. You can then start to analyse the reasons for any discrepancies between the projections and your real figures. 

TURNOVER 

Again, here you should be interested in any differences between your projected turnover and the actual figures. If there are variances, it’s worth having a discussion with your accountant and talking through the implications.

GROSS PROFIT

In a nutshell, your gross profit margin is your income, less cost of goods sold. If this figure isn’t high enough, you won’t be able to cover your overheads and make yourself a profit.

OPERATING PROFIT 

Your operating profit figure is your gross profit less your overheads, but will exclude tax and interest. If this figure is too low and you haven’t yet taken money out of the business, you may have nothing to show for your endeavours.

NET PROFIT

This is your total income, less all expenses including interest and tax.

With cloud accounting now becoming increasingly common, it’s actually possible to monitor all these critical indicators in real time. This means you can make comparisons to the same period last year and see whether any improvements you’ve made to your business practices have achieved results. Contact us now to find out of a switch to the cloud would benefit your business.

Don’t let customer debt get you down

You've identified a potential bad debt. You've sent the friendly reminder, the follow up letter seven days later. You've then phoned two or three times and sent a final notice. Still no joy. Where does it go from here?

It’s a familiar scenario for lots of business people. What seems like a slightly overdue payment is starting to turn into a troublesome debt. You don't particularly want to start formal legal proceedings, as they've been a customer for some years but you're getting increasingly frustrated. 

The phone rings. It’s the customer telling you about their cash flow problems. Things will apparently be resolved next week, so you agree to give them more time. But next week rolls around… nothing. The following week... still nothing.

You are now getting increasingly worried. You might be a key supplier and of course you could place their account on hold, but that could make the situation worse and actually reduce the prospect of payment. What you need is for the customer to engage with you. 

A good first step in this scenario is to speak to your accountant. If they are not themselves an insolvency practitioner, the chances are they will have a good working relationship with one. When they are instructed by a creditor, they will write to the debtor to advise that they have been consulted. The message is usually that failure to either make payment, or provide an acceptable and deliverable payment plan, may result in the creditor taking matters to the next stage, which could ultimately be an insolvency event.

By issuing an unambiguous statement of intent, you make your position clear to the debtor and in doing so you'll invariably find they'll try to prioritise payments to you.

The involvement of a third party in these circumstances will often produce the desired result. If not, then an assessment would have to be made to ascertain whether it's financially viable to pursue matters further.

If you find yourself in this situation and would like to discuss your options, the best thing is to contact your accountant initially. Appropriate action can then be advised on a case-by-case basis.