Not even sure if you are making profits or losses?
An anxious Business Owner contacted me and as we chatted I realised he was very stressed. Further questioning revealed that uncertainty and lack of visibility of his business financial numbers was the cause. He was not able to guage his postion in terms of cash flow and availability of funds for growth.
He was trying to grow his business but was unable to take any decisions around potential recruitment. He was procrastinating as he was unable to measure what the impact of these decisions would be on his finances.
There were no regular monthly accounts being prepared In terms of day to day profitability. He was flying blind! No wonder he was stressed, he was not even that sure he was actually making money!
I prepared the current years updated Management Accounts so they made sense! This was done by ensuring all the necessary accounting adjustments were made, These are the adjustmetns that give your accounts shape and realism. He told me he couldn't trust the figures as they didn't seem to relate to the reality of what he knew. They were consistant at gross margin level and profits didn't swing around from one month to the next. I also implemented the management accounting processes needed to ensure that the monthly accounts were ready by the 15th of each month. This ensured the timeliness of information for management review.
I was able to breakdown the monthly mangement accounts even further. This would help with the strategic decision making as I showed the profitability by service type. There were 8 different services offered by this company. I was able to show which ones were more profitable. This helped the business owner plan forward with more certainty. He now knew which areas he wanted to focus on and grow.
Next I tackled his cash flow forecasting. I put together a 12 month rolling cash flow projection. This gave him a view of what his bank and cash reserves would look like if he remained doing the same as what he was doing now.
The cash flow projection has provided a great starting point for him to get a feel of
- What his current level of cash gain has been over the past 6 months.
- What his current and projected level of spare cash headroom was. This allowed him is able to see what he had available to invest in recruitment which could drive future increased sales.
It provided the base line for further ongoing forecasts. These are based on different scenarios around strategy and projected sales growth and ensure he felt clear on the implication of taking any investment decisions.
Needing to know the impact of changing strategy?
An energy service installation business, was changing its strategy in a bid to shore up a declining market. We realised that this was going to be a difficult trading period, the business was moving its customer base from being mainly small domestic installations to much larger commercial customers. The level of funding required in terms of working capital needed to be clearly visible by project. Furthermore, view of the spend with key suppliers of the raw materials needed to show where credit limits and payment terms may be breached.
To help with the financial management during this period of trading I created a bespoke cash flow model for this business
This model gave the client line of sight on what the bank balance would be, given the planned contracts they were going to undertake over the next year to 18 months.
I worked with the Project Managers and the Directors to ensure the model gave visibility specifically to the critical areas.
Excel modelling techniques enabled me to quickly and proficiently provide a very visual tool which could be handed back to the business for their use and discussion in their weekly operations meeting. Being a project based cash flow model, this ensured that the Project Managers could incorporate this review easily into the current format of their project by project review.
The forecasting data from the model could be further modified to allow the Purchasing Manager to contact existing and new suppliers. He had all the necessary data to hand in terms of volumes required to timescale for the key raw material purchases. Given the larger volumes they were expected to be buying, moving forward, they were able to secure much more favourable purchasing deals in terms of both price and credit terms.