If, like many businesses, you’re quieter during the summer, here’s some ideas for productive ways to spend that time.
If, like many businesses, you’re quieter during the summer, here are some ideas for productive ways to spend that time, writes Paul Webb, a tax partner at small business specialists The Robert James Partnership.
You’ve probably had an exceptionally busy six months trying to survive tough trading conditions. The quieter months of July and August offer an opportunity to take stock and tidy up your finances.
First, make sure budgets and forecasts are watertight. You need a profit and loss budget which forecasts sales and expenses for the coming period and a cash flow forecast showing the movements of cash in and out of the business. Be neither optimistic nor pessimistic, but realistic. This isn’t the time to be gilding the lily to make yourself feel better but equally, things may not be as bad as you fear.
Once you have completed the above, scrutinise your budgets to see what you really need to spend and consider the returns generated for each activity. Get fresh eyes to review budget expenditure (your accountant, an external consultancy, or an experienced mentor outside your business). It will be worth spending money on an expert if they can cut costs you haven’t thought of. Perhaps you subscribe to industry press. Do you need to? Can you reduce costs on entertaining, property or stationery supplies?
Do a thorough turnover analysis to monitor where your profits come from. Are you doing things that yield a low profit? What delivers the best return? At all times, think profit not sales. Too many businesses are preoccupied with turnover when it’s profit that counts.
Improve lines of communication with all your sources of finance. Good communication is absolutely vital in times of economic distress. Look at all your sources of finance and make sure you have a good working relationship with everyone involved, including the bank manager. Make sure you know the terms and conditions of any finance arrangements so you are aware when your overdraft needs renewing or you have to renegotiate a loan agreement. Get sources of finance or banking arrangements confirmed in writing as soon as possible.
Ensure you have regular reporting of results. You cannot know too much about your business’s financial position. If you don’t already, assign yourself up to six key performance indicators (KPIs) to monitor results on a monthly, weekly or even daily basis. Measure things which represent key drivers for your business and which you can manage or control.
Start preparing regular management accounts. Having this information to hand will enable you to respond quickly to every scenario you might be facing. As a minimum you need to have a profit and loss account and balance sheet for every month or quarter. Remember, while KPIs give you reports about the key drivers of the business, your management accounts show you the overall results you are achieving. And as well as helping to streamline the business, banks may also want to see regular management accounts so it’s always worth having these available at short notice.
Tighten your credit control to minimise exposure to bad debts and cash flow problems. If you do not already have the right credit control procedures in place, get these set up so you can collect payments regularly. You should also keep on top of customers’ credit ratings and check the status of new customers or clients you are suspicious of. Consider using an invoice discount facility and re-evaluate your debt management system.
Think about your employees. Difficult decisions might have to be made, and the sooner you make them the better. If you have to make any redundancies, talk to an HR specialist. This is not the time to be flouting employment laws. However, it is not all about cutting staff. You may need to redeploy those already working for you and consider whether bringing in new blood will help the business in the long term. Consider for instance employing a marketing consultant to give you creative inspiration: it doesn’t have to cost the earth and may provide you with a new unique selling point.
Review your training costs. Is there a better way to achieve your aims? Training is critical if you are going to stay up-to-date and fulfil your team’s potential, but perhaps you can bring your training in-house, or change training provider.
These are all relatively simple measures, but they may make the difference between you riding through the economic storm and coming out the other side triumphant, or becoming another statistic in the mounting numbers of business failures. So use the coming summer months to do any long overdue housekeeping and get your business in top shape for buoyant trading over autumn and the pre-Christmas period.