Blog - Remember that the main thing is that the main thing is the main thing

More than 25 years ago I attended a retirement party for the FD of a major company in London. Well into the evening this guy had a piece of advice for me. He said “Remember that the main thing is that the main thing is the main thing”. We’d both had a good few glasses and it wasn’t until the next day that finally I got my brain round this.

When I subsequently started BookCheck in 1994 the first accounting system that we dealt with was Sage Line 50. Being the market leader for serious businesses most of our clients in the early years used Sage.

We provided only two services: Book-keeping with Management Accounts and a Payroll bureau.

Our policy then was to handle any accounting system and we dealt with a good number. About 10 years ago we made a policy decision to focus only on Sage. The reason for this was to be very good at the one subject. This turned out to be a successful policy in that it made life a lot easier in terms of recruitment, training, support and control.

Then Xero appeared. We kept a watchful eye in the early years until eventually we started to see serious prospects. At that point we trained up a part of our business to be able to handle this quite different software. This has developed in the last few years to the situation where now about 20% of our clients and about 40% of our prospects are on Xero. The question has now arisen, should we also include QuickBooks which is similar to Xero.

So should we widen our focus?

Incidentally, after 24 years we are still focused on providing just the two services we started out with, albeit now with different delivery such as Cloud. So I think we’ve stuck to the advice?

Whatever you do, don’t follow this path.

Whatever you do, don’t follow this path.

This is based on a recent client story.

A familiar situation, cash is tight, even worse you’re making a loss. So the cash is getting even tighter. So you naturally push the sales button even harder and spend more time pursuing customers. Seems a sensible idea, so why not?

Maybe you’re looking to sell the goods or services that aren’t going to contribute that much to your profits? Fortunately we had provided split reporting Profit & Loss between the two sectors of the business – new work and maintenance. The former was far less profitable. The company tried to move towards maintenance but really had left this decision far too late.

The client was very slow at chasing debtors. This was sporadic and woefully inadequate. Consequently the debtors increased. It took this client six months to start to fix this critical issue. In the meantime credit facilities were tightened by their suppliers, some required payment up front, others reduced the credit limit. This greatly inhibited their ability to trade, they lost contracts and the situation spiralled towards being out of control. The directors used their personal credit card.

They had to make some key staff redundant, inhibiting their possible redevelopment. Insolvency arose and the client entered a Creditors Voluntary Arrangement with a very much reduced size of business, from £4 million down to £1½ million.

The obvious tips:

  • Always focus on debt chasing
  • Live by a regularly updated cash flow forecast
  • Obtain prompt, quality management accounts which you understand and can trust
  • Split these accounts between the key sectors of your businesses, projects, contracts etc.

Then the magic bit - take action to improve profitability and hence generate more cash

Simple really.

Sales is vanity, Profit is sanity and Cash is King – as always

This entry was posted in Accounting, Management Accounts and tagged in Accounting, Bookkeeping, Management Accounts by Caroline