The 3 most important documents in your business right now.

Many businesses are currently in a state of flux and business owners are having a real roller coaster of a ride.

One minute we seem to be getting back to some sort of normal trading, next we have introduction of national tiers systems and partial lock-down. Then Lock-down 2.0 was introduced last week in England with what looked like no light at the end of the tunnel.

Then earlier this week the fantastic news that a vaccine which may be 90% effective could be our saviour over the coming months. However, before you get too elated, what was it that Aristotle said famously,

"One swallow doesn't make a summer".

Whilst we celebrate this great scientific breakthrough and await further news, the situation around the worldwide pandemic is still unclear and we cannot rely that this one potential vaccine from a collaboration between Pfizer and BioNTech will be the cure we are all looking for and needing. I am sure there will be more good news in the coming days and weeks however;

It is back to business and dealing with the here and now.

We will all likely be in for a few tumultuous months through the winter period and therefore need to ensure we survive through the melee. Don't forget us businesses based here in Britain also need to deal with Eu-Brexit too and what that may bring as we head into 2021. (but that's another blog)

To make the right business decisions, the following information should be at your fingertips and do ensure you utilise these reports and plan accordingly.

#1. Profit and Loss statement – Monthly Management Accounts.

How up to date is your current trading figures? Good practice is, you should only be running 10 days behind actual date. As I write this blog it is the 11th November, so are your year to date accounts up to end October 2020 complete?

• Have you reviewed these?
• How are sales holding up?
• What about cost of sales and the gross margin, versus last year, last month or last quarter?
• Have you considered each expense line too.

What are the trends and your learnings? As a team you should have had or be discussing and putting plans in place to focus on the sales channels, products and services that your customers and potential customers need over the next few weeks and months.

At most you should not be planning more than 3 months ahead. Focus on what you can do and implement now that will make a positive difference to the business over the short term. (create a 90-day plan)

Could stock levels be reduced by offering campaigns and offers? Why it is even "Black Friday" which seems to run for a month, therefore consider having a sales campaign over the few weeks!

Analyse if any costs and expenses could be reduced too.

Wages are likely to be 50% of your business expenses therefore ensure you utilise the extended furlough scheme (CJRS) rather than having staff sitting or standing idle.

Could other savings be found with better terms for say utilities and could some capital purchases be held off till the new year? Don't forget there are Government grants for those businesses that are forced to close too.

Whatever you agree as a team, ensure there is an action plan and timeline and follow up on what the variances are on a regular basis.

#2. Balance sheet - Business viability and the ability to borrow and access funding if required. (net worth)

Balance sheets do not normally get reviewed often until year end or completion of accounts. However, a balance sheet report is a great way to obtain a snapshot and to check what the company actually owes to its creditors but also how large the debtor account is.

In simple terms, if your business closed today, paid all its debts and loans and collected all its revenue due and sold off all its assets at the value you state on your balance sheet, what would be left for you and the shareholders? 

The balance sheet is based on the fundamental equation

Assets = Liabilities + Equity.

If your balance sheet is strong great, however are reserves, surplus bank balances being utilised to the best advantage to the business or you and the other shareholders?

Could any high interest loans be paid down and particularly if there are personal directors guarantees attached to any loans, could these be renegotiated to lesson any risks to you personally. Do explore options with the UK Government backed Bounce Back Loans (BBLs) or CBILS loans as terms may be less onerous.

If things are tight, as mentioned above, is there surplus or obsolescent stock that could be sold back to the supplier or even discounted and turned into cash.

Consider what is on your fixed assets list. Is there is a piece of plant, equipment, office furniture that may not be required in the long term, could this be marketed and sold? Just stick it on E-bay or Gumtree and you may be surprised in the value you could obtain. Focus on what you can turn into cash.

Do not forget to go through your debtors list regularly and chase outstanding debts. Remember some of your clients could be struggling too and you would not want their circumstances to affect your business directly particularly if you have turned a blind eye to what you are owed.

Speaking to your customers on a regular basis will be a way to obtain great intel, on what's going on out there in the market and you may even pick up new opportunities or hear of a competitor who are struggling and therefore a gap in the market for your products and services which you can exploit.

If working capital and cashflow will be particularly tough over the winter period seek professional advice and explore options for injecting further capital into the business to ensure its survival. If you will be applying for a loan or grant the likely hood will be you require document 3.

#3. Financial Forecast. What are the trading projections for the business over the next 3-12 months?

If you have dissected both the past trading through analysing your management accounts (P&L) and reviewed your balance sheet, it should be a fairly simple matter to plot your best estimate of how the next few months look financially. A sample forecast template on a previous blog here. 

Considerations should be made on sales volumes, units, hours and the value generated. Plot your predicted revenue streams by sales channel by month, week or even daily.

Next determine your cost of sales and therefore gross margins from the sales you predict over the coming period. Question and find out if you could obtain more discount from your current suppliers or alternative suppliers to boost margins without reducing quality in products or services delivered to your customers?

Next analyse your business expenses from your P&L management accounts and plot what is essential and required over the trading period forecasted. As mentioned earlier, wages will be your highest reoccurring cost month to month. Therefore, do utilise the (CJRS) furlough scheme which now covers flexible hours working or agree alternative shift patterns and working hours to get the best return from your human resources.

Then go through each cost line and ask yourself, do we really need to be paying for this service or product right now?

Hopefully once you have completed the financial forecast exercise then it is just a matter of delivering what you set yourself out to do. Involve the team, cascade information and instructions clearly and embed responsibility too and do ensure you review the situation regularly.

Chances are your financial forecast will not be a true cash-flow forecast therefore an alternative version could be created by plotting based on cash coming in versus cash going out. This would be a very useful exercise as we head into what may be a tough few months.

Sounds a lot of work doesn't it? And I guess you're busy? However, please note, a key success factor in business is spending time working "on" your business. So do park some time, get your accounts up to date, review and then plan accordingly for the next few months.

If you need some assistance or wish to share and discuss your business situation, please do just reach out. I am more than willing to give an hour or so of my time as part of an initial free consultation and note there no obligation to take anything forward

My contact details are below.

Email; This email address is being protected from spambots. You need JavaScript enabled to view it. Mobile; 07966 686112