Management guide

Raising Finance for Your Business

If you are thinking of expanding your business, or starting a new one, you will need to raise finance. This requires careful planning and good professional advice. It is generally wise to spread your commitment over a number of finance sources. This will give you greater flexibility in the long term. Some of the more common sources are:

It is important to do a comparative study of the costs of each possibility, and also consider any tax implications before making a final decision about who to approach. This is an area where we have considerable experience, networks and expertise.

Most lenders will require some form of security. No amount of security will make a bad plan good, but it does demonstrate commitment from your side and provide insurance for the lender. As one banker recently said 'If they're not prepared to take a risk, why should we?' Generally acceptable forms of security include:

Again, you might consider using more than one form of security. If the lender requires personal guarantees you should proceed with great caution. Try to ensure that any such guarantees are limited in amount, if not in time. You should also consider insuring the risk. You will almost certainly be required to present a comprehensive and convincing business plan to show how you are going to service the loan. In essence, this must demonstrate that you will be able to meet the new commitment through sustained growth in your business.

In all three areas - choosing a finance source, securing the finance, and preparing a business plan - you will benefit greatly from our professional advice. Why not arrange to meet with us and take advantage of our in-house expertise and extensive network of contacts? We might even be able to help you refinance your existing commitments to your advantage.

Don't Fall into the Credit Trap

While concerns of a downturn in the economy are behind us, research shows that small businesses are now more in debt now than at any time since the late 1990's. Those with a turnover of up to £1 million now owe around £1.60 for every £1 of turnover, compared with £1.17 debt per pound of turnover ten years ago.

Despite the comparatively benign economic climate in recent years, there does not seem to have been any improvement in the relative level of small business solvency - businesses that employ 14 people or fewer still account for 76% of all insolvencies.

To make matters worse, small businesses are notoriously difficult to rescue once they get into difficulties. Businesses with a turnover of £1 million or less achieve a rescue rate of only 27% compared with 56% for businesses with a turnover of more than £5 million.

Knock-on effect
Any business owner who experienced the last recession will recognise the danger signals in the present situation. The first thing most businesses do when they run into difficulties is to start delaying payments to their suppliers - and the knock-on effect can quickly spread throughout the business sector. There is, therefore, a greater need than ever to make sure you have effective credit management procedures in place.

Credit management
An effective credit management policy needs pre-sale and after-sale elements. Pre-sale you need to:

After the sale, you need to:

Improving Productivity

Improving productivity is an objective for many businesses. We thought that we might offer an accountant's view of how to address enhancing company output.

Human resources
In any business, the employees are the greatest asset, but few business leaders know how to get the best from them.

One of the most important factors affecting the performance of employees is morale. Research shows there is a clear link between employee satisfaction and company performance and profitability. A happy workforce is a productive workforce.

Effective leadership, comprehensive training, good communication, sharing key information and objectives company-wide, and a strong team spirit all help to boost employee morale, but nothing works better than encouraging a 'sense of belonging'.

Again and again in our work with businesses, we are reminded of what a rich resource employees can be when it comes to improving efficiency and profitability. The shop floor worker, the secretary, the bookkeeper, and the sales assistant are often much more aware of where the inefficiencies lie, how to avoid bottlenecks, or what the customer is really thinking than are the senior management. Consulting them on a regular basis and making them feel involved in the decision making process not only improves their morale and makes them feel part of the business, it also boosts your profits!

Incentives
It is important to reward good ideas and other productive contributions from employees. Although this is often best achieved through the wage packet, it is also important to find ways to reward them publicly so as to motivate others to become involved in improving productivity.

Employers need to move away from 'attendeeism' - remunerating employees simply for being present in the work place - and lock remuneration into output. Do away with permanent overtime and automatic annual bonuses such as the Christmas bonus. These come to be expected and do nothing to encourage improved performance. Instead, make exceptional payments for exceptional contributions. With your sales staff, for example, reward increased profits, not increased sales.

One of the most effective ways to make employees feel involved is through share ownership.

Review
There are many other ways to improve productivity, such as introducing flexible work patterns, outsourcing non-core activities, streamlining product and service lines, and leasing underused plant and equipment.

How to Increase your Profit

In business, your profits are your reward for your endeavours. In fact, profitability is the only reliable measurement of a business' success. Profits are the very lifeblood of a business. They fuel growth, support the owners, provide for the well being of the staff, and ultimately determine the success or failure of the business. So how can you increase your profits?

Gross profit
The objective is either to expand sales income while controlling direct costs, or reduce direct costs to increase gross profit.

You should ensure that:

Warning - Be wary of dropping prices to boost sales. The increased volume may not be sufficient to cover the reduced gross profit margin

Warning - Before changing your supplier, consider the level of service you are receiving as well as the cost

Overheads
You should aim to keep costs under your control:

Summary
You must be aware of your income and expenditure. Proper books and records are essential for monitoring the trends and patterns in your business.

It is not necessary to produce a full profit and loss account every month, rather select the key factors that will best help you understand how you are doing, e.g. chargeable hours, sales volume, wastage, and materials used. Compare these figures with previous months, and with your targets.

Internal Controls

We all heard the saying, 'Don't put all your eggs in one basket.' When it comes to assigning responsibility for everyday financial transactions, business owners should heed this advice and never give too much control to one employee.

Every business owner should have an internal control system firmly in place. Vital in preventing cases of fraud and embezzlement, an internal control system sets forth policies and procedures establishing guidelines for the recording, processing and reporting of financial data and the safeguarding of a company's assets. Proper internal controls and distribution of duties should be designed to make it as difficult as possible to commit fraud.

In fact, many of the frauds discovered in business are uncovered through internal controls. Notification by an employee 'whistle blower' and internal audit review are other common ways fraud is revealed.

Duties must be wisely distributed in order to safeguard the company's assets. The risk of fraud is substantially reduced by ensuring that no one person has too much control in any one financial area. Careful distribution of duties ensures a system of cross-checking for your company. When various people handle different aspects of regular transactions, this provides a deterrent to fraud while increasing the chance of spotting signs of any fraud that still may occur.

The cross-checking seeks to convey that if anyone tries to steal or commit any kind of fraud, it most likely will be discovered by someone else close to the process.

Discovering theft is not the only result of distributing duties properly among your staff. Having more than one person involved in a process or series of transactions greatly reduces the chance that a mistake will go unnoticed. You'll be able to catch these errors earlier, often before they cause problems.

Use the Internal Control Checklist (below) to perform a preliminary evaluation of your company's distribution of duties. These are just a sampling of the areas where problems might arise, but it will provide a starting point to investigating the issue.

Business owners need regularly to evaluate their distribution of duties. Your system should be examined annually or, at the very least, whenever key people within your company are replaced. The frequency of the evaluations makes it difficult for employees to commit or cover up theft. And if your employees know you are on a constant lookout for fraud, it makes them less likely to try anything. For those companies with very small staffs, ideal distribution of duties is not always practical or even possible. But even if you are unable to follow all of the suggestions recommended in this article, you should at least be aware of their significance and keep a watchful eye out for signs of fraud.

If you are concerned about your internal controls (or lack of them), please call us. We can help you evaluate your current procedures and, if necessary, reallocate these duties in order to protect your company.

Internal control checklist

If you answered 'yes' to one of these questions, you may be creating a situation conducive to fraud. If you answered 'yes' to more than a few, your company needs immediate procedural changes.

Managing for Growth

Is your business a dynamic enterprise set on growth, or has it lost its impetus and gone senile? Understanding the difference between a growing business and an ageing business can help you keep your firm on course for growth, or re-energise it if it has run out of steam.

One way to evaluate your business is to examine your modus operandi - how you go about doing things. Does your firm have a 'growth culture' in which innovation and enterprise are encouraged, or is it stifled by caution, regulation, and control? Are you open to ideas or satisfied with your way of doing things?

You can find out by completing the business growth indicator in the panel. If you score mainly in the left column, your business is probably quite healthy and growth orientated; but if you score mainly in the right, you should think seriously about giving your business a new lease of life.

Another way to evaluate your business is to look at your management priorities. Most businesses have four managerial functions:

1. Production - making sure things are produced, whether they be products, services, or simply chargeable hours.
2. Administration - keeping business activities in line with plans, deadlines, and standards.
3. Enterprise - fostering continuous development and innovation in products, services, marketing strategies, etc.
4. Integration - ensuring that all personnel and activities are pulling together to achieve the firm's goals and objectives

In simple terms, a growing business is one in which Production and Enterprise predominate, and an ageing business is one in which Administration and Integration predominate.

Business Growth Indicator

In each row, select the choice that best describes your business. by ticking the boxes

How well is your business performing? 'Growing' - if the majority of ticks are on the left or, 'Ageing' - if most of the ticks are on the right.