As accountants you can imagine we LOVE our own statistics and manage our business by a number of Key Performance Indicators (KPI’s) but only a few of these were weekly, nearly all of them were monthly and many not completed until 15 days after the month end. 

Within the first few days of lockdown we identified this simply wouldn’t be good enough to allow us to have clear sight of how COVID 19 was affecting our business, our clients and give us the information to make decisive decisions to protect what we needed to achieve in the coming weeks and months. For businesses currently trading at a reduced capacity, this will certainly be the case for them too, with arguably slightly harder demand to predict.

What changes did we make?

We have a management board which cover the different areas of the practice and decided we needed to see the following figures on a weekly basis. 

  • Weekly cash collection
  • Weekly invoices raised
  • Debtor days compared to that from previous week and the same month for the previous year
  • Split of how our staff were spending their time (on client work, on what we called developmental work which include looking to improve our systems and processes, training, marketing and on areas of non-developmental work such as computer problems, general office duties etc)
  • Work turnaround for accounts, tax returns and other norm tasks to keep clients compliant to try to ensure a balance between the emergency work and planning we are doing and our core services 
  • Our 5 minute cashflow forecast which allows us to see our immediate true cash available

Why are we focusing on the next 2 months and not long-term planning?

This is because many businesses seem to have enough cash available to survive the next few months provided the furlough grant money starts coming in even if it does mean juggling a few supplier payments. 

But on 25th June, most quarterly commercial rent payments will become due for the next quarter. Also, (potentially) the furlough grants will end, returning staff back to potentially full pay by the business, unless appropriate planning has taken place. 

This makes it really important to spend the coming weeks becoming completely in tune with the business’s finances and ensuring you have a process for regular financial KPIs going forward. Plus, also having expectations of how this will impact your trade once things start to ease a bit because for many, it won’t mean back to 100% for a long while.

Where do I start to get my finances up to date?

To start this exercise, you have to look at your last completed financials. This may mean getting your last set of annual accounts completed to allow you to have a starting point for then getting monthly accounts up to date. 

For those clients with accounting software, you will also need to have your opening position for the current financial year adjusted for the changes made completing your year end. Clients of A4G always get these provided once accounts have been approved. 

This will ensure you have a complete and accurate starting point. 

Then you need to ensure all of your sales and purchases invoices are on your system. If you have Xero you can use automation apps like Receipt Bank to assist you with this making it much faster and more accurate from as little as £9 per month. 

Then get your banks and credit cards reconciled back to the statements and your wages journals entered onto your system. If I’ve completely lost you now, give your client manager a call who can assist you in your next steps!

If you aren’t on any accounting software, now is certainly the time to consider the benefits of having up to date financial information at your fingertips. Our Cloud team are happy to get you set up with a software that suits you best and trained with some great offers on current licenses subscriptions to make it an easier transition. Even if you hate the idea of software please at least speak to us about using our Excel template which can give you a quarterly profit and loss account which is still likely to be an upgrade on the current information you have available without an accounting software.

Does that mean I now have monthly management information?

Yes and no. You have some information to help manage your business such as money in accounts, money owed, money owing but this is likely to be a small amount compared to what you may need in the coming weeks and months. 

One of my favourite reports is what we call the prior year report which shows you the same month for up to the last 5 years. How powerful is that! 

Nearly all businesses have some form of seasonality so it’s good to compare like with like. In times like this it may also help to put things into perspective as this could show you that whilst business is slower, it may compare to a previous year before you had grown or changed which allows you to dig into the memories of what your business looked like then, possibly number of staff, storage or office space required or what you did to achieve that growth and allow you to plan for how you replicate that now.

A number of the successful businesses I know have their own spreadsheets, charts or boards with the KPI’s that matter to them. 

Many of these are sales orientated like orders placed, pipelines of business and when these tie in with accurate monthly management accounts received within 10 days of month end these businesses really come alive. 

But just monthly won’t be enough to manage in the coming days. Speak to us about what information is important to manage your business on weekly numbers and information as each industry can be slightly different.

How do I then go about managing cashflow?

Many businesses still manage cashflow by what is in their bank accounts. Some may take it a little further by looking at what is owed to them from debtors add cash in the bank less their trade suppliers but neither of these ways is comprehensive and certainly not fit to protect your business as much as possible over the next few months when we hope things will return to some semblance of normal. 

If you are on an accounting software, there are some great tools at our disposal to help you have sight of weekly and monthly cashflow. 

If you aren’t, I’d still going to bang the drum that now is the time to start to allow you to adapt quicker to the changes faced but if you still aren’t sure you certainly need to have a way of monitoring the suggested KPIs and some of these must involve cash movement. You need to know cash available, weekly cash in and weekly cash out as a minimum. Plus, if you use our 5 minute cashflow tool, this will help provide an overview of the rest.

What should I be planning for after 2 months?

We have no idea what 2 months’ time will look like except that for all of us it probably looks different to what we had in our sights before this happened. 

I’m also sure that good or bad, it looks different to the same period for the last few years but at least these give us a benchmark.

I’d recommend you start to consider the different scenario planning depending on whether it is a rapid or slow recovery for your business, or anything in between. This will include customers or suppliers that may be lost to COVID 19 and how you go about either filling those gaps or downsizing your business to match the demand.

You may also need to consider what type of longer term finance your business needs, and how much you believe in your business’s future, by way of considering the use of a personal guarantee to improve the lending terms available. 

Personal guarantees shouldn’t be completely discounted or feared but should rightly be given careful consideration. Their purpose if to prove to lenders you have faith in what you are doing (if you aren’t prepared to back it in some way why should they) and are often capped at an amount that cause you maybe a little pain but don’t leave you destitute but guarantee you stick around should the worst happen to ensure collection of as such funds as possible.

From a recent survey of businesses, as little as 2% manage cashflow, invoicing and payments by a weekly processing and a huge 50% still only completed their bookkeeping records for VAT return purposes. This maybe because cashflow hasn’t been a problem and they’ve always been able to draw what they need to live a life better than the one they’d have had as an employee. I’m sure many of you are going through the process of re-assessing this way of working and it is vitally important you do. This has been our message for over 20 years, if you can measure it, you can manage it – quickly and efficiently.

I’m not saying that all businesses will survive if you manage your numbers and cashflow because sadly this has hit some great businesses too hard and too fast. Not all costs can be reduced enough to allow them to survive. For these businesses it is our job to help them exit gracefully, regroup and consider what they do next. What I am desperate not to see is businesses that could have made it, fail because of poor financial planning and cashflow. 

I know I speak for all of us at A4G when I say we are completely invested in seeing as many businesses survive this as possible and want to do what we can to support you. You are the experts in what you do and we are the experts in what we do so please talk to us and allow us to guide you through these choppy waters.

Contact me today!

Emma White

FCA

Partner

01474 853856

Send me a message

Other posts of interest

See more articles