Some Recent Events
Startup Britain Battle Bus!
Startup Britain Battle Bus!
Set Squared Pitching Competition sponsored by Find Invest Grow
Judging at the FIG HQ incubator. My favourite “Webeg2differ” an international student thought magazine. They came 2nd. My advice to students – be really clear about what it is you do.
Microsoft – Go & Grow Online
Dreamstake – business valuation in 20 minutes!
Dreamstake – business valuation in 20 minutes!
From the Blog
Why percentages (and ratios) can save you cash!
There is a common misconception that an experienced finance person can look at a set of management accounts and highlight one or two numbers that indicate the health or otherwise of the business. But this isn’t how it works – because every business is different and has different relationships between the numbers. So what is important is not the absolute values of individual numbers but to establish trends – and this is where percentages (and ratios) can really help you. Let me give you an example – say you are running a restaurant – if you worked out wages as % of sales you could see if your rota is getting more or less efficient. Similarly if you calculated how long it was taking customers to pay (called aged debtors) you could see if you were being more or less efficient in getting in the cash. So while 250+ page books have been written on business ratios – the two main areas you should focus on are profitability and working capital. Let me give you an example of working capital: For working capital there is a measure called “debtor days” or “aged receivables”. To calculate this: Take credit sales (ie excluding cash sales) for the past 3 months and divide by 92 to get average daily sales for the past quarter Find out the balance owed by customers at the end of this period Divide this balance by your average daily sales and bingo you get debtor days – the number of days on average your customers are taking to pay. For example: Credit Sales for quarter £184,000 Divide by 92 = £2,000 per day If customers owed the business £70,000, then £70,000/£2,000 = 35 days! Ie it is taking customers on average 35 days to pay. Your job is then clearly to manage this to the assumptions in your business model by seeing how this moves month by month – you now have a tool to see the trend. If you would like to find out more about profit ratios then do have a look at my book “Understanding Your Business finances”. All of this of course pre-supposes that you have a proper accounting system to produce this information to calculate the ratios and percentages!…
Let your Chart of Accounts save you cash
Your chart of accounts (CoA) is the list of headings (or homes) that your accounting package uses to categorise your business income and expenses. By grouping transactions in sufficient detail you can really understand whats going on in your business. For example rather than just recording marketing as a lump sum, break it down further eg Pay per click, PR, trade shows etc. By breaking costs down into smaller components you can much more easily see the spend that is going on and as the cliché goes – you need to measure it to manage it. So having identified the right level of detailed reporting for your costs you can use this to set the budget. (Designing the layout of your CoA is so important that it is worth getting help on). So how can the CoA save you cash? Well firstly with a computerized accounting system you can easily run a report that compares actual spend with budget – if spend is running higher than budget this will be shown by an unfavourable variance. And this should prompt you to investigate why this has happened ie why is spend running ahead of budget. Also you can run a report that lists your costs and spend for the current month and year to date. What you do with this is as follows: get a cup of coffee or tea get a ruler and pencil slide the ruler over each cost and spend information and think really hard how this can be reduced, is it necessary? For those items that you think are too high – run a print out of all the transactions in that account. You may find some have been entered in error – but the remaining transactions should be scrutinized for wastage or over spend For those accounts that you have identified where savings could be made – start a system of re-negotiating and re-tendering to get better deals. If you haven’t done this exercise before my guess is you will be able to reduce your overhead costs by at least 9% – good work!
Good Documentation Saves Cash
January can be a pretty tough month for trading after the hump of Christmas – unless you happen to be a fitness coach or selling diet supplements…so as well as reviewing your marketing plans, use the time to make sure you have all your business arrangements properly documented. In my experience more cash is lost because of unclear and undocumented business arrangements than any other reason. What kind of things should you be thinking of? Well are you in business with a friend with no written agreement? Do you not have a shareholder agreement? Do you have terms of trade with your customers? Any “employees” or freelancers without contracts? Are you doing work without a written agreement/specification eg building a website without clear payment milestones. Have you borrowed money from a family friend? All these need documenting What’s the best way of doing the documentation – just do it! An exchange of emails is better than nothing. Obviously important agreements require a lawyer (typical cost £750-900 per agreement) – but the next best is a DIY approach using online templates for example from www.simplydocs.co.uk .
“Thank you for your brilliant jam packed day on finance at LCC. Believe it or not I came home and began sorting things out straight away, as tired as I was. Much to be done! As I mentioned to you I work at the Royal British Society of Sculptors as the Education Projects Manager and organise professional development seminars for sculptors on various aspects around making a living. It would be wonderful if you could lead the seminar on finance coming up.”
“Thank you very much to the connection to your film. It is really very good and I agree with you about the necessity for training people to understand this stuff by taking the mystery out of it. To be honest there are a lot of people who are already supposed to be in business who could use a simple refresher on many of these points.”
“I really enjoy your classes. You cover the important topics that we need to learn step by step, and like Weronika said you add a human touch to what would otherwise be numbers numbers and numbers.”
“This enterprise and financial management in cultural production has been an enjoyable and high level learning experience and I feel that the method and techniques related to finance, I learned on the unit helped me to make this business plan much better than if I had tried to develop such a project without the theory.“
“I looked through your videos – they look good and the principle behind it is definitely useful, and I think there could even be an idea of EMCA students viewing them before starting the EMCA finance unit, so could be a great way of getting up to speed.”
“I thought the course was fabulous because I actually understood the basic principles of cash flow, balance sheet and profit and loss. The course was taught in a less formal way than one would in a financial training course which made it easier to understand to learn. Overall, I really liked the course, I found it very helpful and it’s been really great of you to upload all the documents, excel models after each class. I really learned a lot and enjoyed it!”