Corporate Finance Associates Blog

The following is an extract from several articles posted by BT Business and Growing Business websites

New figures from Business Link have revealed that 45% of small and medium sized enterprises (SME’s) sampled have few if any systems in place to chase unpaid and overdue invoices

The poll of London SMEs also found that nearly a third are weak when it comes to management of their cashflow, while almost half have no idea of where their gross profit margin or breakeven point is.

These results have been released to coincide with the launch of Business Link’s new 10 point financial health checklist, which it hopes will help business owners keep their finances more in control. A copy of Business Links checklist can be downloaded here.

“Sound financial management should be the bread and butter of every business, especially during these tough economic times,” according to Matthew Perkins, a senior Business Link advisor, reporting to the British Chambers of Commerce

Smaller businesses (those with less than 10 staff) fared worse in the poll. Only 50% had a structured process in place to chase unpaid invoices compared to 72% of larger SMEs.

Perkins added: “As we head into the recovery period, understanding where your money is, following up your unpaid debts and knowing what your profit is, are vital to keep your business in the black and head for growth.”

We see many companies where this has become an issue and can introduce our Associates who have the skills to help point your business in the right direction, why not visit our website and we can see whether we can help.

We hear about green shoots of recovery and it is easy to get (or continue to be) complacent about the lifeblood of most businesses namely cashflow and in the fog of the Credit Crunch here are some financial faux pas to avoid

1. Tax Liabilities

it’s easy to get carried away and forget to build tax into your financial forecasts and budgeting. Use an accountant, they are less frightening than you imagine and can help you understand the need to budget for how much tax & NI you expect and will need to pay. A good one could save you the equivalent of their fees by their knowledge and actions too

2. Ignoring the Authorities

Even if you are setting up as a sole trader, you should notify the Revenue and Customs (HMRC) immediately. Penalties are payable if notice is not given within a certain timescale. The rules on financial penalties changed on 6 April 2009, so don’t be caught out by out of date advice. There will be more to consider if you are setting up a limited company, so make sure you get the right advice, again contact an accountant early in the life of your business.

3. Being too Cheap

Value yourself, your products and services. It can be hard for new businesses to compete on price as existing competitors may find it easier to undercut you, or have a larger client bank to work with. Try other ways of making your product or service attractive to new customers.  Why not offer a tiered service so that those expecting more from you are happy to pay more.  It has been said that an average business increasing their prices by 10% can afford to lose 25% of their customers (maybe those that give you the most grief) and still be as profitable as before.

4. Underestimating your Cash Needs
 
It’s often said that ‘Cash is King’, but it is so important it is worth re-iterating. Make sure you have sufficient levels of working capital. Many businesses fail, not because they are not profitable, but because they lack cash. The bank overdraft is not always the most effective way of achieving that especially if your business is growing.  Speak to us we may have a better alternative.

5. It will never happen to me

New businesses often rely entirely on one or two key people, and little thought is given to what would happen in the event of accident or illness. Plan for the unexpected and make use of insurance where appropriate. If you are a partner or a company director make sure you protect your business in the event of a partner or a co-director becoming ill or dying. Business protection can often be the first thing to go if things get tight, but the cost in the future will be massive by comparison.

6. Is Your Working Capital Working?

Even in the current low interest climate, there are reasonable returns to be had on your working capital. Keep the funds held in your current business account to a minimum and make sure you are maximising the interest payable on your deposit account. With many business deposit accounts paying very little interest and significantly better returns available elsewhere you could be missing out.

7. Get a Reality Check

When forecasting your sales levels, make sure you are realistic. Build in factors such as delays in payment – particularly where you are offering credit to customers, who themselves are experiencing their own challenges, and of course those inevitable bad debts.

8. Dismissing Contingency Planning

Every business should budget for a contingency fund. It could help get you out of a scrape, or more importantly provide valuable funds for a new business opportunity.  Think about Disaster Recovery too, what would happen if your IT systems fail, or your premises are burnt down or flood.  The right insurance will pay out but cannot compensate for your time and effort to get back to normal.

9. Being afraid of Financial Reports

It’s easy to be baffled by jargon, but reports such as your profit & loss account, sales forecast and cashflow analysis, should be an essential part of your day to day business, and are not difficult to understand.  Again talk to your accountant, who can get you past the jargon or alternatively take a part time course in Business Studies and Finance, they will all help.

10. Get Advice when you Need it

Never enter unknowingly into a contract – always get advice if you need it first. There’s a lot of general advice available free, and, like us many professionals offer a free initial consultation. If not, good advice often pays for itself. A good rule of thumb is that if you don’t pay for advice expect that advice to be flawed, and someone else’s opinion when they have no vested interest in your success is about as much value as a belly button.

Above just remember that doing nothing is a decision, and often represents a decision to fail as in business as in life in general we are either moving forward or falling backwards, never can we be certain to stay in one place, in other words as a mentor of mine once said, “You are either Green and Growing or Ripe and Ready to Rot”!