Taking control of your finances
Up to date financial information will tell you what is going on in your business. This consequently enables you to take control of your finances and take action. The secret with this is ensuring you do things NOW – not some distant time in the future. We will tackle this in two parts, costs and income.
Costs
Keeping a close eye on your costs is vitally important for control. At the end of every month you should look at what you have spent. You should then draw up a short “To Do” list of things to do to keep your costs under control. This need not be an onerous task, just a simple walk through of you P&L report and identify what you have been spending. The sorts of things you should be looking for are:
Errors
Have you paid for something twice? Is there a huge sum you don’t recognise? Have you been paid everything that you should have? This should take you no more than five minutes and is just a very simple check to ensure all is in order;
Unusual amounts
In particular are there any large and unexpected sums? Some examples might be:
- A big overtime bill – this is a very obvious one, but has it got out of control?
- A bill for some capital equipment that should be allocated to capital and spread over a period of time;
- A large utility bill – look for large phone bills or internet usage bills;
- Fuel costs – are they creeping up? Should you re-think your delivery charges or all the travelling that is going on?
- Big “miscellaneous” expenses – are things creeping in here that should be elsewhere and the costs passed on to customers?
Goods and materials costs
You must always keep a close watch of these costs. This could consequently lead to lots of possible actions. These might include increasing prices to customers if raw material prices are going up, or considering getting new deals from different suppliers. It may be that the production team are not being careful about wastage and the production process needs looking at to make it more cost efficient;
Bank charges and professional fees
These fees can easily creep up. It may also be that you need to think about ways and means of reducing your interest payments. You should also check that you are getting value for money from the use of other professionals;
Insurance
This is a very competitive market and it always pays to shop around.
My father always said to me “Look after the pennies and the pounds will look after themselves”. Hence two or three hours every month just walking through costs and taking a few actions as a result will reward you significantly.
Income
Most business owners will say that you cannot predict what your customers are going to spend with you. To some extent this is true but a switched on owner will know what is happening with his/her customers. The main theme is to ensure that you are aware of what your main customers are doing – and are talking to them about it. If they are expanding, help them out, be part of it, go out of your way to provide whatever help you can. If they are struggling then talk to them again. You may be able to help out with their marketing or with talking to their customers. Perhaps you could even make some amendments to your product so your customer can improve the service they are providing. Be very careful about extending credit, but this could well be something worth considering.
An example
I have a client with £3m p.a. turnover. They buy approximately £400K of goods p.a. from one supplier (supplier X). My customer was really struggling to meet payment terms and needed some help from their suppliers. They owed supplier X about £200K. They sat down with supplier X and came to a financial arrangement about the historical debt that made a huge difference to their cash flow issues. Supplier X is now treating the £200K as a loan. Both businesses are thriving and supplier X is still selling over £400K worth of goods every year to my client. If supplier X had called in the debt at the time, my client would probably have gone out of business. Supplier X would not have got the full amount of their £200K debt paid and MOST IMPORTANT Supplier X would now be £400K p.a. down on their regular annual income.
Trends
Watch for trends. A gradual reduction of sales could mean the customer is struggling. It could also mean that they are buying elsewhere because of some issues with your supply. Talk to the customer, find out what is happening and if they need help offer it – it’ll be worth your while.
If your customer is planning expansion then you will want to be part of that. You may need to gear up your production in advance. You may be able to help them in other ways, perhaps with their marketing plans. In any event, if you are working with them, you will be part of their expansion and able to reap the obvious benefits.