So how do you choose our accountant?

All Things Financial

Cost? Reliability? Accuracy? Compliance? Speed of delivery?

The temptation of course is to go for reliability and accuracy as your determining factors, with obviously cost as a significant factor and compliance equally important, but a given. Speed of delivery is important, but not the determining factor. Reliability and Accuracy usually sway most towards the high street accountant, the local chartered accountancy firm, whose staff and employees will generate your accounts reliably, accurately and compliantly. What they will do, is follow both the rule of law, ( the companies acts and taxation laws) in strict compliance, and their own governing bodies accounting conventions. There is absolutely nothing wrong with that. In fact, this is the right way (but not the only right way!), the correct way to get your year-end accounting statements prepared for Companies House and HMRC. But is it really what you need?

We are a very important and…

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Franchise audit – 6 good reasons to start auditing today.

An older post, but still just as relevant…

All Things Financial

Why should you outsource your franchise auditing?

1) Improved Revenue and Profitability. Auditing encourages your franchises to declare their revenues correctly; where previously you may have missed out on fees and profit.

 2) Outsourcing to a trusted and professional business partner, takes away the contradiction between you and your franchisees. We carry out the audit, as per the franchise agreement, allowing you to carry on supporting your franchise network, without the ‘we don’t trust you contradiction.’

3) The temptation to generate additional undeclared income for a franchisee is enormous, especially in these troubled times. It they know you are watching them; they are far less likely to try to defraud you.

4) The benefit of a partnership between the auditor and the franchisor creates a greater understanding of the requirements of both the franchisee and the franchisor. The auditing process frequently highlights areas where improvements can be made to the…

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So how do you choose our accountant?

Cost? Reliability? Accuracy? Compliance? Speed of delivery?

The temptation of course is to go for reliability and accuracy as your determining factors, with obviously cost as a significant factor and compliance equally important, but a given. Speed of delivery is important, but not the determining factor. Reliability and Accuracy usually sway most towards the high street accountant, the local chartered accountancy firm, whose staff and employees will generate your accounts reliably, accurately and compliantly. What they will do, is follow both the rule of law, ( the companies acts and taxation laws) in strict compliance, and their own governing bodies accounting conventions. There is absolutely nothing wrong with that. In fact, this is the right way (but not the only right way!), the correct way to get your year-end accounting statements prepared for Companies House and HMRC. But is it really what you need?

We are a very important and growing part of UK PLC.

The process by which even a small high street accounting firm delivers your accounts is often long winded, not least because of the enforced checks and balances brought about by their accounting conventions, but also because frequently the accounts themselves are generated by junior, often not fully trained staff, whose work needs to be checked and monitored by supervisors and then ultimately signed off by a partner. As I say, all perfectly correct and compliant, but long-winded, inevitably costly and oh so time consuming.

So is there an alternative?

Yes, of course, but you still need to ensure that the fundamental issues are addressed; Cost, Reliability, Accuracy, Compliance and Speed of delivery. Freelance accountants can and do offer an alternative. Most can offer a full year–end accounting service reliably, accurately, inexpensively and promptly and of course compliantly; i.e. delivering accounts in compliance with company and taxation laws. Where they stand out though is in the delivery of that service in terms of cost and speed, but also in terms of actually helping you to run the business, a spare pair of hands if you like, who can help monitor the things you need to be doing, help keep your business costs down and help make sure there is enough cash in the business. They will not be hindered by the incessant checks and balances and the unnecessary and fastidious governance of their accounting conventions. They will probably still pay homage to them, but use them as a yardstick, rather than a brick wall… As a result, they will inevitably be cheaper and they will deliver your accounts to you promptly and accurately.

Probably a bit controversial this. I can just hear the ACA and CIMA, qualified accountants jumping with rage at the suggestion that their service could in some case be inferior to the freelance and often ‘unqualified’ accountant. But that is ok, because on this forum alone, there have been many references to the importance of using a ‘qualified’ accountant, whilst also pointing an unfavourable finger at those who have not qualified professionally. But actually drawing a line in the sand, there is a real point here. There are some businesses, which even in their infancy require a fully compliant set of accounts generated by a chartered accountant and for them as they grow this is the only way. For most others, their businesses, either in their infancy or where will never grow ( by choice or by market restriction) to the point where there is pressure to appoint a chartered accountant and these businesses are better off appointing a freelance accountant. They will save money, expect prompt and accurate accounts and enjoy the benefits of a partner to their business.

It’s about time some someone stood up for the freelance. We are a very important and growing part of UK PLC.

What is Business Turnaround?

If your business is in trouble, you will know it already and so will your management and probably your staff. They will all be aware that the business needs something to stop it from spiralling out of control. Of course it may be too late. It may be that you consider that there is no way back and therefore some form of corporate recovery or as a last resort insolvency proceedings are appropriate. If recovery or turning the business around is still an option, it may be appropriate to engage a recovery specialist to assist you. This process is colloquially known as Business Turnaround.

A Turnaround specialist, will look at a business from an outsiders perspective, a fresh eye, with the knowledge and skills to provide complete objectivity. They are able to identify problems and recommend solutions that may not be visible to the company’s management and staff simply because they are too close to the subject. In addition, experience within a particular industry may mean little when a company is in severe difficulty. A turnaround specialist/ consultant brings objectivity and experience in crisis situations; the ability to make critical judgements quickly in order for the business to have the best chance at recovery. Operating in the eye of the storm, the consultant must deal equitably with angry creditors, scared employees, wary customers and a nervous board of directors. With the highest stakes on the table, clearly this is no assignment for the faint-hearted.

Signs of a Troubled Business

A company may require the services of a turnaround specialist for many reasons. Here are the most common signs of trouble. In most cases a troubled business will display more than one of these signs:

Behind the Market  Changes in the marketplace can leave a company lagging behind, with depressed sales and lost market share. For some, the deficiency is technology, for others, the problem lies in sales and marketing; their products or services slide into obsolescence because the company hasn’t kept pace with the needs of the marketplace.

Insufficient controls and reporting Managing a company without adequate procedural and reporting mechanisms is a bit like flying an air plane without an instrument control panel. If management is making decisions on old or inaccurate information, the company can easily head in the wrong direction.

Over diversification Many businesses feel the pressure to diversify in order to reduce risk and increase sales. However, too much diversification may cause them to spread themselves too thin. As a result, they become even more vulnerable to the competition.

Explosive growth Companies are sometimes tempted to add value by engineering a growth spurt. However, a company cannot expand its way out of trouble. Growth often carries a very high price tag and leveraging a company to such a degree means that management must operate with little or no margin for error.

Operating without a business plan Surprisingly, a number of growing companies operate without a coherent and regularly updated business plan. Management decisions can change the direction of a business overnight because it is based on their own “feel” for the market. In other cases the business plan exists in everyone’s head rather than in writing. The result is that plans are carried out according to individual interpretation.

Ineffective management style Senior Managers and company founders may find it difficult to delegate authority. No decision, big or small, can be made without their blessing. As a result, the rest of the management staff is without solid experience or any feeling of ownership. If the founder suddenly dies or becomes incapacitated, the whole company is in danger of collapse.

A precarious customer base Few businesses have the luxury of determining the exact proportions of their customer base. Nonetheless, some companies do put too many eggs in one basket. If a manufacturer selling to large retail chains has two customers who represent 60 percent of the business, the company is obviously vulnerable. The loss of just one customer could put a significant proportion of the workforce out of work or worse still make the business insolvent.

5 Steps to Business Turnaround:

Step 1: Checking the business vital signs Before a consultant recommends any major changes they must obviously determine where the big issues are. This means the first day or so is spent gathering information and measuring the scope and depth of the company’s ills.Key questions to be answered are:

a)     Just how sick is the company?

b)    Is financial CPR required or a milder form of treatment?

c)     Is the business beyond rescue or would a form of formal administration or Corporate Voluntary Arrangement be more appropriate In the meantime, there are various groups that must be dealt with. The first is creditors who may have been kept in the dark and are angry. Employees are confused and concerned about the security of their jobs and customers may be wary about the future of the firm. The Consultant and the business managers will need to pacify these audiences until an action plan is agreed.

Step 2: The plan Once the major issues are identified, an action plan can be formulated. The plan must then be sold to all key parties, including the directors, management team, and relevant employees. If appropriate, confidence must also be instilled in the bankers, supplier’s major creditors, and vendors.

Step 3: Actioning the plan. If the company really is in critical condition, the action plan may be simple but drastic. Emergency surgery needs to be performed to stop the haemorrhaging. There may be a whole range of measures which are appropriate, including widespread redundancy, a reduction in employee’s wages or a temporary freeze on all accounts payable. The goal is to halt the bleeding immediately. At this time emotions can run high especially if employees have to be made redundant and the role of the consultant can be two-fold, acting as a bridge between employer and employee.

Step 4: Surviving the crisis In many ways surviving is the most difficult step of all. Eliminating losses is one thing, but achieving an acceptable return on the firm’s investment is quite another. Once the haemorrhaging is over and the administrative costs are cut, one crucial issue remains: Are the anticipated revenues enough to keep the company’s doors open? What is the long-term outlook? Of particular concern is the state of the core business of the company. If the core business is irretrievably damaged, then the outlook could be bleak. Management must decide if the company is capable of long-term survival. If it is, the company must now concentrate on sustained profitability and the smooth operation of existing facilities. During the turnaround, the product mix may have changed, requiring the company to do some repositioning. Core products may have been neglected and require immediate attention to remain competitive. In the new, leaner company some facilities might be closed simply because they are no longer needed. The company may even withdraw from certain markets or move its products into a different niche. Survival, not tradition, determines the new shape of the business.

Step 5: Returning to profitability In the final step of the turnaround, the company slowly returns to normal. This time period is the longest, lasting for up to five years for smaller companies. While earlier steps concentrated on correcting problems, this focuses on internal and external development. New marketing initiatives are encouraged to broaden the business base and to increase market penetration. To facilitate revenue growth, new products are sought and customer service improved. Financially, the shift is from cash flow concerns to a strong balance sheet and return on investment.

The turnaround has now completed and the business returned to health.

So why Franchise audit?

‘Under-reporting or under-declaring of sales by franchisees is rife in the franchise industry…’ This is a bold statement. But is it true?

Based on US auditors research, approximately 15% to 20% of franchise locations are underreporting sales by 15% or more. As a result, locating and correcting underreporting behaviour can increase MSF revenue up to 4% annually. So if franchise msf revenue is £1M, on average £40k additional revenue can be generated.

Indeed, further evidence from the US franchise market, where franchise or royalty auditing is more widespread than in the UK, suggests that a program of audits across the franchise network will derive greater results and greater support from the network, than one off specifically targeted audits against franchises known to be under declaring sales.

Our own findings show that all franchisors receive a boost in returns when an auditor is introduced to the network; creating an amnesty environment, as the individual franchisees attempt to bring their records to good order. Indeed, most franchisees welcome a Franchise Audit program being implemented. It levels the playing field and ensures all franchisees are held to the same obligations. And in terms of the actual results of an audit; on average 95% of the cost of the audit is recovered in full, by fees detected in the audit process.

It all seemed like such a good idea….

People buy franchises because they are persuaded, they will make money, they will improve their work/life balance and because they want to run their own business.

Two to three years on. How many franchisees feel that their original aspirations have been fulfilled?

I suspect if you carried out a survey; the answer would be relatively few. But then we are in the depths of the biggest downturn in 80 years. You would expect that many would be suffering. And so they are…

But why?  Franchisors go to great lengths to promote the viability of their franchise proposition. They will tell you that within two to three years you will be generating £x sales and £s profit. They will advise that they will support you all the way and will assist you in the marketing process throughout the lifetime of an agreement.  

Of course most franchisors do support their franchise network very effectively and with realistic projected levels of income sold to the prospective franchisee as part of the recruitment process. The anticipated levels of turnover and support are being achieved. But there are also some franchisors whose projections were maybe unrealistic and the support promised to help the franchisee through the myriad and complexities of actual day to day business is sadly missing. Franchisees who acquired a franchise from one of these franchisors could well find themselves in a bit of a mess.

But of course that is not the whole story. It is frequently the franchisee who gets it wrong…  How many franchisees’ start off with the best intentions and then over time decide that their way is the better way and deviate away from the proven franchise system?  We know there are many as that is what the franchisors tell us. One estimate (from a US based franchise consultant) put this at a third of every franchisors network. That is a third of every network attempting to buck the system, to find their own way of doing  things and of course many of those also attempt to avoid declaring all they have sold, with a view to avoid paying all their fees.

Can you imagine that happening at McDonalds? Control of your franchise network, as well as supporting and nurturing them is one of the biggest challenges that franchisors face. Many franchisors have good and effective controls in place to prevent a franchisee going off the rails, but some don’t and it is these franchisors who will have the biggest problems…

So who is to blame? There is no simple answer. It may be the franchisor who has failed in their obligation to support their franchisees. It may be that their sales projections were unrealistic, or that they are simply not paying enough attention to who is declaring what and why some franchises are just not performing as well as they should be. Moreover, it may be the franchisee who just feels they are cleverer than the franchisor; that they can buck the system or that they can make a little extra on the sly.

In both these cases, the franchisor is left to pick up the pieces…

 Chris Burton is the Principal Advisor at CBCS. (www.cbcservices.org) CBCS specialise in Franchise Auditing, Support and Franchisee financial training.

 

 

 

Have you totted up how much you pay your Accountant lately?

At CBCS, we recognise that many small and medium sized businesses pay too much for their year end and day to day accounting. Frequently the process is unnecessarily complicated and drawn out over many weeks as your accountants carry out their checks and balances and their in-depth final analysis of your accounts. Much of this is not needed and this means your charges are probably considerably greater than they should be.

Of course, as small and medium sized companies can usually file abbreviated accounts at Companies House, there is no need for an audit. Your accounts can be prepared directly from your accounting records, saving a considerable number of accounting man hours and saving you a small fortune.

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CBCS offer a range of Financial Management, Accounting and Bookkeeping services designed to make life easier for you. We can deliver your accounts quickly and accurately to prescribed deadlines and for a fraction of the price that you may pay an established high street accounting practice.

Our standard Bookkeeping and Year End Accounting service is a case in point. This is suitable for small Ltd companies; who need their year end processing and verification that their records are being administered correctly.  In addition this package offers the development of templates to assist the small business owner with their basic monthly accounting requirements, together with assistance in preparing cash-flow forecasts, bank reconciliation, tax calculations for year end and PAYE and the generation of standard reports from your accounting software. We can also assist you with your payroll day to day and year end obligations.

This package is designed to help you at year end and throughout the year. It provides a basic but complete service in addition to your year end requirements.  The total cost and hours to be billed are agreed in advance and are usually in the range £500 to £1,500 per year. These modest costs are designed to save you money… You do not need to spend thousand of pounds on your year end accounting.

A Personal Note:

As a former Financial Controller of a large UK franchisor, I have seen first hand how difficult it is for franchisees and licensees to look after their finances whilst trying to grow their businesses within their specified areas.

I started CBCS, 3 years ago and have continued to work in the SME and franchise industry ever since. I have helped many businesses bring their finances back to good order, be it by assisting with cash-flow management, helping them with their year end accounts, or helping them to prepare their finances for a funding presentation etc…

Full details of all of our services are on our websites:

http://www.cbcservices.org.

http://promptcash.co.uk

 

 

Franchise Audit – Can you afford not to?

Spare a thought for your poor franchisees…

In this economic climate, times are tough for all of us. We all have to tighten our belts and your franchisees in particular have to scrutinise the spending of every penny. When trading is poor and the bank balance is shrinking fast; people do the strangest things. They start to think about where they can save it, which bills can they delay paying or who can they avoid paying….  Where can they hide the money, so that they don’t have to declare it? Suddenly those healthy and consistent sales returns from your franchisees can lower dramatically…

Does this sound familiar?

The problems that cash strapped or profit starved businesses face is very common. There is hardly a network of franchisees in the country where this is not an issue. It is highly likely that your business is suffering diminished returns as a result.

So how do you resolve this?

The obvious route is to chase the franchisee hard and question why their returns have reduced so markedly… But if they are trying to hide this information from you in the first place, this is unlikely to be successful. There is another solution.

Appointing a third party auditor to visit your randomly selected franchisees, will have a two-fold effect. On the one hand; just by announcing that an auditor has been appointed will result in a 3% increase in sales declared (US auditor source) and that is even before the auditor has visited. On the other, following an audit, on average we recover sufficient undeclared revenue to cover 95% of our fees, which are by the way, just £500 per audit (standard price, subject to variation).  

Our auditing visits are designed to make the franchisee feel comfortable about our attendance. We want them to feel that there is a mutual benefit to our being there and that we can genuinely assist them with their problems as well as uncover issues which need to be reported. Often this creates an opportunity for the franchisee to come clean and to make a fresh start with you; with any highlighted issues which you can assist with coming to the fore.

We offer a variety of different auditing solutions. The ‘Standard audit’ involves a maximum five hour visit to their premises, alternatively, we can carry out a ‘Take Away ‘Audit (where we visit, remove the files and return them once the audit is completed) or a ‘Virtual’ Audit (where records are passed to us on-line) We also offer a Franchisee Business Review service, where you are picking up the cost of our assisting your franchisee, we carry out an audit behind the scene. We even offer an International auditing service; often your overseas franchisees are the worst offenders! In each case, we will then generate a report to you within 48 hrs of the audit.

The report will highlight issues which the franchisee needs to address and of course undisclosed sales. You can then approach the franchisee and request payment of your missing fees.  We can take on the role of ‘Enforcer’, should this be required, where we will chase the franchisee to make payment, based on the findings in our report. 

Our latest offering is the Franchise Return and Document Collection Service:

How many of your franchisees fail to submit their returns on time and how many fail to submit year end financials or copies of VAT returns submitted as part of their franchise agreement contractual obligations. 

 

The returns or declarations are critical to your business as of course is the MSF or royalty itself. We offer a polite e-mail driven collection service that reminds the franchisee of their obligations. 

But even if your franchisees send their returns and fees in on time, do you know how well their business is doing? You can carry out a franchise audit or a franchisee business review through ourselves of course, but for a more cost effective solution, we can chase the year end submission of year end accounts and/or copies of their quarterly VAT returns. For as little as £25 per franchisee we can collect and submit these directly to you. We can also collate and cross reference against their submitted returns, highlighting immediately and showing franchisees where further investigation and potentially an audit or review may be appropriate. 

Of course much of this is dependant on your franchise agreement and on what authority you have to access your franchisees financial records. Assuming this authority is in place, you can feel comfortable that engaging the services of CBCS to carry out your auditing requirements will result in increase revenue. 

CBCS offer the complete package of auditing and financial support and training solutions for your franchisees. We can be there at the outset, providing training as part of your new franchisee training course, we can provide additional financial training for your existing franchises and of course we can be sourced as a provider of support for the franchisee’s financial and administrative issues.

Franchise audit – 6 good reasons to start auditing today.

Why should you outsource your franchise auditing?

1) Improved Revenue and Profitability. Auditing encourages your franchises to declare their revenues correctly; where previously you may have missed out on fees and profit.

 2) Outsourcing to a trusted and professional business partner, takes away the contradiction between you and your franchisees. We carry out the audit, as per the franchise agreement, allowing you to carry on supporting your franchise network, without the ‘we don’t trust you contradiction.’

3) The temptation to generate additional undeclared income for a franchisee is enormous, especially in these troubled times. It they know you are watching them; they are far less likely to try to defraud you.

4) The benefit of a partnership between the auditor and the franchisor creates a greater understanding of the requirements of both the franchisee and the franchisor. The auditing process frequently highlights areas where improvements can be made to the benefit of both of the franchise parties.

5) Cost. It need not cost you anything. If you can identify franchisees who you suspect our under-declaring, you can recover the cost of one or even multiple audits from just one visit.

6) Critical Mass. If your business is growing, the chances are that you are using your franchise recruitment fess to support your business. When you achieve Critical Mass, the revenue derived from your management service fees will reach a point where your business is self sustaining and gross profit from each and every new franchisee will go straight to your bottom line. If you audit you increase the prospect of achieving Critical Mass faster.

Outsourcing your audit to CBCS, gives you consistent and unbiased results; allowing you, the franchisor to concentrate on providing support to your franchisees. We would work in partnership with you to establish a bespoke audit method, which would work best with your franchisees and provide you with the reassurance that your franchisees were in compliance.

Because we can tailor services to suit you and because we are small, we can achieve all this at a surprisingly low cost to you and that’s the crunch in these difficult times.

Would you like to know more?

Please contact me directly on 07759 248490/01428 743932 or via e-mail at chrisburton@cbcservices.org. Alternatively you can access our website at http://www.cbcservices.org and complete our on-line form.

We look forward to hearing from you.

A new client. Are they the ‘Walking Dead’? How much do you really know about them?

All the hard work has been done. You products and services are selling and you have new clients on board…. All you have to do is provide your service or supply the product and everyone is happy. All you have to do now is get paid…

Most of your clients are paying you on time, some even within terms. The majority of the others have a good reason for not paying you. But why is one client in particular not paying you? Will they ever pay you?

Hopefully if the value of the business generated form this new client justifies the cost, you have already done a credit check on their business and you have reviewed and set a specific credit limit based on the clients buying expectation and your assessment of their credit report. But is that the whole story?

The media has this week been awash with stories about the strength ( or lack of) the UK economy. At best UK PLC is bouncing along the bottom. At worse we will shortly enter a period of recession again… a triple dip recession. It is difficult to say, let alone comprehend the damage this is doing to thousands of UK companies. the news on the continent remains bad and if the ‘fiscal cliff’ edge is reached in the USA and Obama and the Republicans cannot settle their differences, the whole  world will suffer… again! It all looks a bit gloomy…

Recent press coverage has highlighted the number of companies in the UK who are just about breaking even and staying afloat, because they are managing to continue to pay their loans and charges. These businesses are existing… They cannot invest and grow as all their money is tied up in working capital. They are the ‘walking dead’… Still alive just, but not a good credit risk.

So how do you know who these companies are.? Well there are lots of them, which in itself means it is prudent to tie down your credit decision policy to ensure that your risk to bad debt is limited. There are certain signs you can look out for when assessing a new clients credit report:

*Lower or reduced net profits (relative to the size of the company) or near to break even, or those companies who have made a loss.

* Persistent loss making companies, who remain in existence as a ‘going concern’.

* High Gearing. This is the percentage of loans,charges debenture and other debt showing on the balance sheet under long term creditors. If this is too high, it shows an over reliance on external funding. ie. they cannot support themselves.

Companies like these are the ‘walking dead’. They can of course still obtain credit from you and a whole host of other creditors. If they overstretch themselves  they wont pay you, they will pay the people they have to pay first; the business critical debt, the loans, HMRC and their staff.

It follows of course that the longer you leave a debt to fester, the more chance it will not be paid.  How long will it before  the directors of the company or one of their creditors decides enough is enough and the company and your debtor is forced into administration….

All companies suffer from bad debt. It is not unique. All you can do as a business owner or manager is do as much as you can in advance to ensure you limit the value of of business you pick up from one of the ‘walking dead’ companies. If you do pick up high credit risk business, do your research, apply strict credit limits, enforce them and then follow good credit collection techniques to ensure your debtor knows that you are a priority too. Then when the debt is paid, look for business elsewhere…