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Shark Under Water

Posted: 30 Jun 2011 in Blog Business Advice

Shark under the water

In a volatile economic environment, even when the recession is over, it's hard to predict what new risks will emerge. If you don't have visibility of every aspect of your business a new crisis could bite you before you even spot it. Examples: credit will probably be harder to win or renew; the property market will be highly unpredictable; some of your customers will go out of business and new competitors will appear from nowhere. Do you have clear and detailed financial information to monitor what's going on under the water of your business?


What’s the big issue here?

Do you feel fully in control of your finances?  We've talked to hundreds of directors of businesses.  We know that, no matter how successful, most directors have a "blind spot" in some area of finance.  It's natural – most people’s expertise lies in other areas rather than managing finances. But how often have you had unpleasant surprises around finances that you haven't seen coming?  And somehow they keep reoccurring?


We've listed 5 of the most common challenges.  Do you recognise any of these?

1.       You make good profits but cash is still a problem

Some directors get very frustrated when their accountant says, “You’ve made a good profit.”  Yet you can’t see it – and may therefore run short of cash to make key purchases.  Other directors get equally frustrated when they’re told, “You sitting on a lot of cash – but you’ll have a huge tax bill if you take it out of the company.”

2.       You don’t feel in control 

Many directors get angry when that unexpected bill suddenly pops out of the woodwork.  Or there is urgent VAT or PAYE bill suddenly appears from HMRC – and which you thought had been sorted weeks ago. Do you find that you spend a lot of time monitoring what going on – but it always relates to others work? 

3.       You find accounting and financial matters to be "black magic"

Many directors are great at winning new business – but show them a set of accounts or reports and their mind goes blank. 

4.       You pay your accountants well but financial information is still a problem 

Your accountants appear to do a good job.  But you don’t get the financial information you need to make an informed decision, when you need it.  In fact, you may not be sure what your accountant can provide… and he or she isn’t being proactive. Or may be talking in “accountese” that bears no relation to plain English! 

5.       You pay very good bonuses and commissions to staff that aren't matched by equally good profits. 

What can be done?


1.       Regularly monitor the performance of you business and do so on a timely basis. The key is to have a good management reporting systems.

Tip 1: The key to effective management information is:

ü  Relevant – ie they must be useful to the reader.  They should include not only the financials but also how you are doing in relation to your Key  Performance Indicators

ü  Timely – they need to be published quickly – certainly no more than 4 weeks after the period-end. I was producing management accounts for a  complex  international group with a $ billion dollar turnover within two weeks of the month-end and so I just don’t accept that management accounts should take a long time to produce

ü  Brief - not too much details. If the reporting takes more than one hour to read and digest then it is too long and people will not read-it

ü  There must words as well as numbers. Without explanation numbers are either not understood or worse misunderstood

2.       Measure your Key Performance Indicators (KPI’s).

Tip 2: Define what you key performance indicators (KPI’s) are?

ü  Normally there will be between 4 and 12 Key Performance Indicators. If you more than 12 then some of these are not key. Focus on the important ones. Measure the KPI’s regularly as appropriate but as minimum at least monthly. Some you should monitor weekly or even daily. You will start to see trends – it is important to monitor these trends.

ü  Produce regular management accounts. Depending on the size and complexity of the business do these monthly or quarterly. This should include reporting on KPI’s,  the income statement and balance sheet as well as projections. If cash-flow is an issue then there should be both a historic and projected cash-flow.

3.      In relation to your IT systems - define the reports you would like out of them– and then make sure they will deliver it.

4.       Always balance accuracy against speed and cost of collection when collecting information. Where possible get your reports generated automatically by your computer systems

5.       Avoid collecting and distributing too much information. Information overload is also a common problem








Case Study


The client (a recruitment agency) was doing well. They were growing and had plans to grow the business further. However, even though profits grew, the cash business did not. This was surprising as this was a business where normally you would expect the profits generated to be reflected in a growing cash pile. The consultants were getting generous commissions and bonuses but despite this the people with the best bonuses were not delivering the best results.


The company’s external accountants were responsible for the accounting, but they only prepared the quarterly VAT return and the accounts at the end of each year. The office manager prepared the bonus and commission calculations and these were not reconciled to the accounts


 In order to solve this, the company implemented as systems of monthly management accounts which also tied into the bonus calculation, In addition a system of key performance indicators were developed. A graphical summary was distributed each week for each team and distributed to all consultants and manager


Much of the data collection was automated and automatic links between the operational and accounting system were implemented.


Interestingly enough by work performed by the accountant was refocused, and as a result (plus also with the help of good negotiation) the cost for them doing the accounts did not increase.


In addition the bonus and commission system was redesigned and were focussed on the company’s key performance indicators. This led to a better performance both from consultants and their managers. The company’s performance improved


Credit control also needing improving and debtors days were reduced a third delivering more than £250,000 in additional cash


The owner at the end of the process felt more in control. This, along with the improved cash-flow gave the owner the confidence to start on an accelerated growth plan.






Ian Swycher

January 2010



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