Matt Gibson has been Director of 8020 Financial Management North-East since September 2009. Before opening this newest 8020 franchise, Matt worked for 20 years in the financial sector. His career has included positions at NatWest and Coutts & Co.
In this feature, the 37-year-old explains what his role as a financial manager is and how his services benefit clients.
Matt also highlights six warning signs that should tell you that all is not well with your company.
Driving Your Business
Think of your business as a car. An accountant’s job is to look through the rearview mirror and assess your journey to date. My job is to look through the windscreen and help you travel the road ahead.
When I’m called in to help a business, it is often by the client’s bank. This is usually because they have become increasingly concerned by the financial state of the business in question.
It’s my job to lift the bonnet and find out what the problems are.
Chasing Turnover
When a business is in trouble there is a tendency to pursue any sale, to get work at any cost. We call this chasing turnover.
It looks good, for a while. There’s work coming in and the bank account looks okay. The danger with chasing turnover, however, is that it may prove to be an illusion. This is because money coming in doesn’t meet all the costs involved in running the business.
Strange as it may sound, your bank balance is not a good marker for measuring the health of your company. You might have £10,000 in the bank but if your costs for the next month are £12,000 – well, that‘s not good!
Or, suppose you have £600 in your bank account but you also have a forthcoming VAT bill for £700. Your bank account looks healthy but in reality you are overdrawn because that money does not belong to you.
Chasing turnover is the worst thing to do when faced with hard times. There are, however, other things you can do.
Look at your costs with a view to making savings. By that I mean things like:
* Can you change suppliers for various goods and services and get better deals? For instance, what about your gas, electricity? There are numerous suppliers and some great offers out there but you need to shop around.
* Can you make savings through changing your bank? I had one client; they were paying £1,800 annually for banking services. We contacted another bank and negotiated a deal worth 18 months of free business banking.
* Review your VAT returns to ensure that all reclaims you are eligible for are made.
* Take a look at your staff’s purchasing practices. These may need to be tightened up to ensure that there aren’t duplicate orders or that only essential purchases are made.
Late Payers
This is a big problem in the business world. It’s a fact that some of your clients will not pay until they are chased. We can help by taking over your Debtor Books and ensuring that all your invoices have been paid. He who shouts loudest gets paid first!
In summary, it’s all about freeing up the various blockages that might be stopping the financial flow that, like the blood supply in the human body, keeps an organisation healthy.
Hidden Costs
I come across this so often. A business takes on a job that pays £500. Great, they think. But in reality, hidden costs such as fuel, catering, small things, seemingly unimportant things, all add up. The result is that, actually, you’re not making £500 at all but £200.
Now, suppose you’ve got three jobs for which you think you are earning £500 a time but because of hidden costs you are only making £200. So, you think you have £1,500 coming in over the next month and let’s say that your estimated outgoings for that same period of time is £900.
But because of hidden costs you are only, in fact, making £600 from those jobs …. Your business is in trouble and you don’t even know it.
Hard Core Debt
Let us imagine that a business has an overdraft of £1,000 but at the end of each month the balance never gets better than £500 overdrawn. The bank is concerned; they can see that you are permanently trapped in the overdraft. That loan – because that’s what it is – is never getting serviced because all you are doing is paying the interest for use of that overdraft.
The bank begins to suspect that you are not able to pay back that £500. They call this Hard Core Debt and it will have your account manager reaching for the Alka-Seltzer and then the phone to someone like me.
Painful Calls to the Bank!
Do you always have to justify things to your bank manager?
Do you find yourself scrabbling around for excuses as to why the overdraft hasn’t been paid off on time or why you’re struggling with the loan payments? Or, are creditors chasing you for money – are you struggling to pay bills and invoices?
These are classic signs that a business is in trouble.
Management of Financial Information
Some businesses don’t keep adequate financial records. There could be all sorts of reasons for this. When a business grows, accounts tend to go by the wayside. Business receipts fill up various pots and trays and the accounts become disordered.
This is storing up trouble for the future.
Good management of financial records isn’t only about producing yearly accounts but using your financial records to gather business intelligence. This can then be deployed in measuring the health of your company and in planning a future course for it.
Your financial records are a vital management tool for seeing where you have been and where you are going.
Our monthly financial reports provide a detailed breakdown of all money coming into and out of your business. We are able to use this intelligence in many different ways.
Using cash flow analysis we can study the road ahead for your business, highlighting rocky patches, good straight drives and maybe the occasional unexpected hair-pin turn! Our analysis can look ahead five years and identify your future financial needs with pin-point accuracy. It can simulate various ‘what if’ scenarios and produce financial forecasts that have been requested by your bank
We can also write loan submission reports on your behalf because we know exactly how a bank manager thinks. This isn’t as scary as you might think! We can also track which of your products are selling and which are not. This is important because you may be pouring money into supporting a loss maker. Your market might be changing and you’re not aware of it.
Our financial management reports are not simply forecasts that have been prepared by your accountant or a spreadsheet that provides lots of numbers and sums but no insight.
It is a working document prepared by a finance expert using specialist software.
Don’t Wait – Take Action!
Sometimes, when I’m brought in to help a business, it’s sadly too late to do anything but ensure that the client can park and not crash.
It’s a shame because in many cases the reason for a business failure is because the people managing that company have not heeded the warning signs.
They have hoped that problems would sort themselves out and go away – but they won’t.
It’s the doctor syndrome. You are unwell but reluctant to seek medical advice. When, finally, you do go to see the doctor – it’s too late. But it needn’t have been like that because if you’d gone sooner then the problem could have been sorted.
It’s exactly the same with a business. If you recognise any of the danger signs I’ve discussed – take action!