Management Accounts

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

Black & White. You’ve either got it or you haven’t - quality Management Information

Quality Management Information

The business world is divided into the haves and have nots - which one are you? Some have nots want it and others don't - fair enough, as there's no point in complicating matters if the information is not going to be used to increase profitability or value.

What's interesting, at least from our perspective, are the businesses that don't know whether MI would be of benefit because they don't have the experience. So here are a few thoughts to help this group.

Let's start with the very well worn cliché which never dates and bears repeating “ Sales is Vanity, Profit is Sanity and Cash is King". In a nutshell that is arguably the best business advice ever. The second best might be "If you can Measure it you can Improve it".

Let's look at measuring profit. What's needed is something like your year end accounts but much better in that they should be monthly, to allow prompt attention and they must be totally understandable to you, the owner and user. If not, it's going to be wasted effort. You will need to understand and focus on Margins as that is a key indicator of your profitability.

Beyond that, always look for a split of the business, such as sales of product separate from a repairing service. If you don't separate the gross margins for each then you're mixing and messing the information. Simple but crucial.

That's all, short and sweet. If that's whetted your appetite then do something about it and enjoy the extra profits.

Anthony Pilkington

Managing Director, BookCheck Ltd

This entry was posted in Management Accounts and tagged in Management Accounts by bookchadmin