Browsing articles from "January, 2011"
Essential Business Advice Tips: Finance
In this article we focus on some of the essential business advice tips that you should consider for your business with regard to finance matters:
Cashflow
Cash is king for any business and is the main cause of business failure. Knowing where your cash is, what is coming in, what is going out and how much you have is crucial. Ensure that you know how money moves around within your company.
Credit Control
To support your cashflow, chase invoices before they are due i.e. 7 days before; make sure there are no issues that could cause a delay in settling the invoice and that you are on the payment run. If there are problems, they can be resolved in advance so there is no delay in payment being made to you; or if the client has a problem paying, you can come to a suitable agreement.
With regard to creditors, don’t pay too early and negotiate the best terms you can and, if you are having problems paying, communicate with your supplier and see if you can arrange a payment plan to help your cashflow.
Management Accounts
Often bookkeepers and accountants provide figures that look backwards not forwards and maybe are up to 3 months out of date.
Make sure that whoever is producing the finances for you that they are preparing a cashflow forecast looking at the months ahead and that the key parameters for your business are being reported so that you know at least monthly (if not weekly) exactly where you stand.
Break Even Point
This is the minimum level of sales that you need to make to cover all your business costs and start to get into a profitable situation.
Assuming you know your fixed costs (e.g. salaries, rent, rates – often referred to as overheads) and variable costs (these relate to the cost of production and vary with quantity e.g. raw materials) within the business, the simplest way to work this out is as follows:
Work out your gross profit (GP) = Total sales – Variable Costs
Calculate your GP percentage = Gross Profit ÷ Sales
Break Even Point = Fixed Costs ÷ GP Percentage
For example, if your sales turnover is £500k, your fixed costs are £100k and your variable costs are £200k:
GP = £500k – £200k = £300k
GP percentage = £300k ÷ £500k = 60%
Break Even Point = £100k ÷ 60% = £167k
Funding
Are you aware of the various options available to fund your business?
An overdraft or loan may not be the most cost effective way and there are a number of other ways of raising capital and improving cashflow for your business: factoring, leasing, asset finance, trade finance, payroll funding, pension funds, business angels, venture capitalists.
If you are successful with raising funds for your business, invest it wisely and effectively so that it makes a difference to your business stability and growth (see next page for different sources of funding).
Cost Reduction
Do you have a handle on the costs in your business particularly for the supply of goods and services? It is worth reviewing at least annually to see where savings can be made or test the market regularly to assess if your suppliers are competitive in the current economic climate.
Grants
Make sure you are aware of any grants that may be available to your business. You maybe in a particular geographic region where funds are available, or have a specific niche (e.g. waste management, environmental services) where there may be particular specialist grants for your business.
There are also streams of funding for research and development, overseas trade, leadership development and you may even be eligible for EU grants. A useful site to search for grants is http://www.grantfinder.co.uk.
Profit versus Turnover
There is a saying “turnover is vanity, profit is sanity”. What is the point of having millions of pounds of sales revenue but only pounds of profit? Know where and what your costs are to get your product and service to market and if you are actually making any money on the sales that you are making (see Break Even Point above). Don’t wait for your annual accounts to appear a few months after the year end only to find out you have made a loss!
Banks
Are you working with the right bank, one who understands your business and its needs?
Maintain communication with your ‘bank manager’, keep them up to date on what is happening in the business; even if your situation is precarious – the bank will find out eventually. Keeping them ‘on side’ can benefit you if you have difficult decisions to make that may need your bank’s support.
Invoicing
Consider increasing the frequency that your invoices are sent out – why wait until the end of the month?
This means you can chase invoices earlier and just before they are due to ensure timely payment and improve your cashflow.
This will depend on the terms and conditions and arrangement that you have with your clients – these can be changed if you think that ‘instant invoicing’ will benefit your business.
Capitalization
Having enough funds to run the business is key to being successful. Particularly if you are starting a business, if you have no sales for 3 months – will you still be able to fund your marketing activity and other costs in the business?
Different Sources Of Funding
Below is a bullet point list of the various options available to your business for obtaining funds:
Loans
- Credit cards
- Overdraft
- Bank Loans
- Mortgages
- Enterprise Finance Guarantee Scheme
Equity Finance
- Business Angels
- Venture Capital
- Enterprise Capital Funds
Grants
- R&D tax credits
Asset Backed Finance
- Leasing
- Factoring
- Invoice discounting
- Trade Finance
- Payroll Finance
- Pension Fund
Business Relationship Funding
- Joint Ventures
- Partnerships
- Joint Working Relationships
- Agencies
- Distributors
- Alliances
- Trade investors
- Associates
- Equity Swap
- Franchises
- Licensing
Free Resources
How to credit check a customer
Safeguarding your business against clients who pay late or not at all is difficult at the best of times.
Yet with some forecasting 2011 to be a bumper year for insolvencies, it’s going to be more important than ever for SMEs to know how much credit, if any, should be given to their customers. This will also include checking historically financially-sound customers with a good payment record who may now also be at risk from the rapidly changing economy.
So what can companies do to ensure they have the best picture of their customers’ financial health?
Read full article: http://realbusiness.co.uk/how_to_guides/how_to_credit_check_a_customer
Free Resources
SMEs Think Global As Domestic Confidence Drops
British companies are ‘wisely’ placing their faith in overseas markets after a sharp drop in confidence and renewed fears over domestic demand for the first half of the year, a report reveals.Lloyds Bank’s twice-yearly survey of more than 1,800 companies shows businesses are less confident than they were six months ago and most plan to raise prices to maintain profits, though the majority doubt the UK will slip into a ‘double dip’ resolution.
The Lloyds’ Business in Britain Confidence Index, which tracks business views on sales, orders and profits for the next six months, dropped to a balance of 12 in December from 18 in June. The index is now at the lowest point since recession-hit June 2009 when it plummeted to -30. The balance is the percentage of businesses expecting an increase minus the percentage predicting a fall.
Read full article: http://www.growthbusiness.co.uk/news/business-news/1309463/smes-think-global-as-domestic-confidence-drops.thtml
Free Resources
UK must up exports to emerging markets, warns PwC
The UK risks being left “playing in the slow lane for the next 40 years” if it is unable to crack developing economies such as Brazil, India, Russia, China and Turkey, according to PwC’s chief economist John Hawksworth.PwC’s The World in 2050 report predicts a dramatic shift in the world’s leading economies, and forecasts that China will overtake the US as the world’s biggest economy in just 21 years’ time, while India could start closing in on the US by 2050.
While the UK, the US and other Western markets are left floundering in the wake of the global economic slump, China’s GDP flourished at an annual rate of more than nine per cent. Similarly, India’s economy is thriving with GDP at an annual rate of 8.9 per cent.
Read full article: http://realbusiness.co.uk/leadership/uk_must_up_exports_to_emerging_markets_warns_pwc
Free Resources
- Paul Green's 'Top Tweets' Daily is out! http://t.co/eppJSHeJ ▸ Top stories today via @Kirsty_Henshaw @simplybusiness @PaulSloane 16 hrs ago
- @paulgoodfellow5 Hi Paul - sounds interesting. What sort of help are you looking for? 1 day ago
- How do you get the positioning right for your business?: http://t.co/dccfNtYn 1 day ago
- The best attended networking group to date #NABONetworking http://t.co/9W6SpQEj 1 day ago
- I just became the mayor of Home on @foursquare! http://t.co/TPjSOvqS 2 days ago
- Waiting for train to start the journey home. (@ Bletchley Railway Station (BLY)) http://t.co/aT9iL5Oe 2 days ago
- Lunchtime :-) (@ The Barge Inn) http://t.co/19UyEoNS 2 days ago
- More updates...
Blog/Article Categories
Blog Archives
Blog Tags
Banks
business link
business plan
Business Planning
cash
cashflow
cash flow
direct mail
direct marketing
Direct Marketing Tip
downturn
economy
employee
employees
entrepreneur
finance
Finance
funding
funds
growth
hmrc
HR
Human Resources
IT
leader
leadership
leadership
Legal
lending
loan
Loans
management
Manufacturing
marketing
Marketing
profit
recession
sales
sales letter
small business
SME
staff
Start Ups
Tax
Vince Cable
