What Good MI looks like

What Good MI looks like

In short it's quality information that allows you to make informed management decisions to improve the profitability and value of your business. Good implies that it meets your individual requirements, it’s sufficiently detailed but not too much and that you fully understand it – you own it. But it needs to be prompt – another ingredient of Good. It needs to tick all these boxes to be successful. 

Good does not mean it needs to be voluminous. Every user is different. Some will really benefit from some 40 pages, others will do much better with 4. Some love bar charts, some hate them - of course both can be provided. It's really up to you as an individual to work it out and then make your requirements known to whoever is producing the MI. They are your accounts – not those of the accounts producer. There’s nothing wrong in taking advice on what is Good – not every user is finically skilled. There is nothing to stop you being guided by someone who has the expertise so that you're in a position to understand and use the Good MI. 

Good implies that the information is sound. It's not good if it’s beautifully produced and prompt but not reconciled or wrong. So it’s crucial to take whatever steps are necessary to ensure that it is sound. This may include a quality health check. This is not difficult to organise - it’s just a matter of asking. 

An average user would list the following as possibly known information: 

•    sales
•    sales orders
•    what’s in the bank or not 

What most users would not know, which Good MI would provide, is:

•    a cash flow forecast for some months – to avoid problems
•    the gross margin percentage – so it’s measured then improved
•    the overheads costs – so it’s measured and then reduced
•    a quality P&L with comparison to budget / previous year – so profitability is boosted

Notice a pattern here? Measure the things that matter then you can determine what action you want to take and track progress. Do this and you are in control of your business performance and you are not just letting it happen.

A Good system includes management accounts that are of the quality of the year-end but produced soon after each month end. Some businesses have it, most don’t. Of course these reports need to include the gross margin % - much better when split between different sectors of the business. For instance, in BookCheck there are in effect two businesses. The first is bookkeeping with management accounts and the second is payroll with the auto enrolment. They are really separate businesses which is why we produce their own P&L reports each month. Not surprisingly they produce different margin percentages. Then when the margin changes we know which side has caused it. Otherwise it would be pure guesswork, which is worse than useless.

What it can do for your Business

The most important objective in your business is to ensure that you don't go bust or run into serious cash flow difficulties. So Good MI in the form of a cash flow forecast is a vital part of preventing such a disaster. This is particularly necessary in current times when businesses are regrouping after the pandemic. Many are growing rapidly, compared with say a year ago. Counter-intuitively this is a potentially dangerous situation because it's likely that such growth will cause a cash flow issue or crisis. Will there be sufficient receipts at the required time to pay the bills and your staff? It's absolutely critical that this is considered.

The second most important objective is to make as much profit as possible. That is somewhat different to increasing sales which is the automatic urge. Increasing sales is all very well as long as the focus is on profit. This of course assumes you know what the profit margin is of each project/contract or product or service – do you have this information? This is where Good MI really scores. Fixing this gap will probably be the most profitable step you could take.

There is a massive almost hidden benefit of Good MI which is not to be undervalued. It takes an enormous amount of pressure off management if the facts are known. Informed decisions can then be taken to improve. Otherwise it’s stressful trying to work out what to do which tends to result in an undue focus on increasing sales. 

It's really important to understand the effect on profits of changes to the selling prices, both up and down. In chasing sales it's very easy to assume that a reduction of say 10% in the selling price is going to be a good idea, because it will increase sales by more than 10%. This is horribly wrong as this example will show. Suppose your gross margin is 40%

sale units sale £ change sale each cost each profit each profit total
100    £10 £6 £4 £400
133 -10% £9 £6 £3 £400
80 10% £11 £6 £5 £400

 With a 10% reduction in selling price you would need no less than 33% more units of sale, just to stand still. Not attractive. On the other hand increase your price by 10% and volume can drop by 20% - far more attractive. Find your margin and play with the numbers. It surprises just about everybody.

An associated challenge with a lot of MI that it involves serious time from a director level or even an expensive FD in its production. This is a questionable use of such valuable time. With poor quality MI it's a double whammy. Good MI scores a double bonus here.

All in all an impressive list of the real benefits of Good MI – achievable by every business. If you would like to talk to us to see how we can help put Good MI in place for your business and put you on the road to better performance, please get in touch. 

BookCheck launches a Credit Management Service

With 26 years experience and 60 staff in the Team, Gloucestershire based Bookkeeping with Management Information and Payroll specialist BookCheck has launched a complementary service to improve cash flow and reduce bad debts.

According to the UK Government figures UK businesses are owed a staggering £23.4 billion in overdue payments. The average SME spends 1½ hours a day chasing late invoices, costing £500 per month. COVID 19 has made what was a bad problem even worse with 62% of SMEs experiencing an increase in late payments or payments frozen altogether since the pandemic began. The research also reveals that 13% of SMEs experiencing late payments struggle to pay their bills, 12% have difficulties paying their own staff on time and 10% have to rely on invoice financing to draw cash into their businesses.

Anthony Pilkington, Managing Director of BookCheck, explained the rationale for launching the service now: “The need for this support service has never been greater. Late payments have a suffocating effect on cashflow. This stifles development and may cause suppliers to stop accounts for vital goods or services. Our support will let owners concentrate on what they do best, running their business.”

The BookCheck service starts with a free Credit Management HealthCheck which audits the current performance and procedures. This is run remotely by viewing the accounting system online, with privacy protected by a non-disclosure agreement. 

The HealthCheck identifies problem areas and priorities for improvement. BookCheck then proposes a bespoke plan, with a range of actions, to get the business in much better shape. This possibly involves benefitting from complementary software which can make the task very much easier and quicker, thus more likely to be successful. BookCheck has wide experience of add-on software which need careful selection according to the different types of business requirements.
The results can be startling – our experience is, that after three months, debtor days are reduced by an average of 30%, so what was 45 days from invoice date becomes 32. On debtors of say £250,000 this means £75,000 more in the bank. That’s what is called a good return on investment.

Of course bad debts are a lot worse than slow payment. What is often overlooked is how attention to this subject reduces bad debts as this is a fundamental part of the whole Credit Management system. This includes setting and actually using credit limits, avoiding non chasing of debtors which allows them to become old and uncollectable. Credit insurance is also covered, in our experience a subject unknown to most businesses.

The free HealthCheck is available to any business, without a requirement to be using any other BookCheck service. Furthermore, there is no obligation to engage BookCheck ongoing - it’s perfectly OK simply to use the results of the free HealthCheck in-house. Or you may prefer some degree of assistance from BookCheck’s highly experienced team who know all the ins and outs of this subject. This even includes debt chasing when you don’t want to.
 
So, if you have trouble getting paid or you are finding that you are wasting too much time chasing invoices, then BookCheck could be the answer for you. If you would like a free 15 minute phone discussion you have nothing to lose so contact us today and get that money rolling in! 

https://www.bookcheck.co.uk/credit-management

 

This entry was posted in Accounting, Business Development and tagged in Credit Management by Caroline