Tuesday 24 April 2012

Making sure it really does all add up…..


A tale of two entities. One a public company one a charity. What do they have in common? They both apparently have beancounters that can’t add up! Step forward SuperGroup, home to the Superdry brand beloved by such luminaries as Justin Bieber and David Beckham, and the National Youth Theatre which launched the careers of Dame Helen Mirren and Colin Firth among others.

Getting the numbers wrong is the ultimate accountant’s nightmare. Most of us obsessively check and cross check what we do as well as putting other checks and balances in place to identify possible risks before they turn into real problems. Whenever we read about accounting errors we scurry back to our ledgers to see if there is anything we might have missed.

Clearly this is something that the organisations involved in this case didn’t do. Super Group’s fourth profit warning of the year was apparently down to bad accounting rather than bad business (I have to admit I can’t remember what the reasons for the other three were), one of the problems being that a plus was entered rather than a minus. They’ll probably blame that one on the education system. Meanwhile the National Youth Theatre’s problems were down to an “income stream” being entered into the books twice.

It does not have to be this way. In a small or medium sized business or charity it should be possible to put sufficient early warning systems in place to pick up errors. Whether it is daily cash balances, time sheet data, delivery patterns, production schedules, order books, stock shortages or invoices received and sent, reviewing some or all these activities on a regular basis should give an indication of how the business is doing and any inconsistencies that might exist well before any accounts are produced.

In a larger business checks and balances are more a case of having the right systems and people in place. Dealing with remote operations and staff is a challenge, particularly if you want to avoid micro management from the centre. Nonetheless good lines of communication, regular KPI reviews and tight control and monitoring of cash, allied to a real understanding of how the numbers should work, should provide some protection against accounting errors.

A well run organisation should make it possible to know how well or badly it is doing financially long before any monthly management reports are produced. Good managers who understand their businesses ought to be aware of problems before their accountants tell them. Maybe the blame in the above cases should be more widely apportioned....

Tuesday 10 April 2012

Not so Wilde about this Scrooge approach to holidays...

Did you enjoy your Easter break? I hope so because the Centre for Economics and Business Research (CEBR) reckons that our 8 (or 9 depending on royal celebrations) bank holidays cost the UK economy around £19billion. 

It seems that the spirit of Scrooge has clearly moved beyond the festive season and is now pursuing us all the year round. If that is what bank holidays cost, think what the statutory annual leave must cost. Hey, why don’t we go the whole hog and add in weekends?

The only surprise is that this piece of research wasn’t compiled by a firm of accountants because, as everybody likes to believe, those unemotional beancounters are the ultimate business cost cynics, epitomising Oscar Wilde’s dictum of knowing the price of everything and the value of nothing

Actually good accountants, in their guise as Finance Directors, do not focus on the cost of everything. They seek to understand how the products and services offered by their businesses create value, realising that this is how real profit and cash is generated.

The valuation of such products and services, and beyond that the valuation of a business for sale, involves a lot more than just looking at the tangible cost elements. As can be seen when valuing houses a variety of factors get taken into account, not just the bricks, mortar, land and other materials.

Invariably valuation is in the eye of the beholder. Most employees see the value in their holidays, which is why they are much appreciated and jealously guarded. I suspect the impact of this value is considerably more than £19billion.

Maybe the issue is that bosses need to take more holidays (cue shedloads of comments about how difficult it is for a small business owner manager to take any holiday). Or perhaps the CEBR should themselves take a break…….

Wednesday 4 April 2012

The recession hokey cokey…


You know how it goes. Last week we were in a recession, this week we’re out. In, out, in, out, shake it all about. What’s a poor business to do? In a nutshell, what it does best, as well as it can, and a darn sight better than its competitors.

Working on strategies and budgets with various clients at present, I have been presented with statistics which show this GDP growth or that consumer confidence. It is all valuable stuff but at the end of the day for most small and medium sized businesses it is about developing opportunities and growth based on your strengths and your efforts. It is no longer possible to rely on economic growth to deliver business growth.

That is why understanding your numbers and what they mean for profits and cash flow is so important. If you can do this, you can use your market awareness to put together realistic action plans, targeting potential new clients that are creditworthy and that can deliver real growth. You can also assess current clients and the opportunities that they can present. Of course there are threats to take into account. However strategic financial planning involves understanding and managing risks so you can reap the benefits.

How you view the economy is often dependent on your own personal attitude to life. Do you see the Olympics as a disruption or opportunity? As regards the stock market are you a bear or bull? Do you think an extra day’s holiday for the Queen’s Jubilee is a headache or a chance to create a feel good factor? In short is your glass half empty or half full? Entrepreneurs are inherently optimistic. Finance Directors are less so. This is a good mix for a sustainable future.

The “good times” of the last decade are long gone. The likelihood is that the only economic certainty over the coming months will be uncertainty. We’ve all had to learn how to deal with that over the past few years haven’t we? It is now time for us to put what we have learned into practice to move our businesses forward. Whatever your mood, whatever your disposition, whatever your religion, have a good Easter break and then get stuck into doing what you do better than anyone else.