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.

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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.

Business Funding – How easy is it to get it?

Not easy at all, is the simple answer and it is not just about your businesses credit score… although it helps to have a good one.

Who you approach and in what order and how you prepare for it is key. If we assume for the moment that your business has a good credit score, is profitable, has consistent financial ratios with a strong balance sheet and assuming you have a good relationship with your bankers you should always approach them first. As long as your business is not overly reliant on debt or other loans (highly geared) and you are not over-stretching the business with the new loan proposal, there is a good chance you will be successful and the process will be relatively painless and simple.

Yes… Banks do still say yes; but what happens if your bank says no? Is that it or should you try to find out why and whether you may be more successful elsewhere?  The ‘why’ is always an important question. Banks like all commercial organisations use in the first instance credit scores and your business financials to determine whether they will lend. They will also look at your business plan and the reasons cited why you are seeking finance. How you present your loan application to the bank or indeed to any prospective funder is critically important. In the short term there is not much you can do about your credit score, unless you have satisfied County Court Judgements (CCJ’s) which can be removed. Likewise your financials cannot be improved overnight and you cannot change your profit and loss account and balance sheet from a period which has already finished.

You can though showcase your business in a favourable way, by projecting your financials forward, showing that the business is growing and that profitability levels and balance sheet ratios will improve. Putting this in a concise and easy to read format will help a prospective funder to view your loan application more favourably than it might have done had it just been reliant on your credit score and year end financial statements.

The 5 Year Plan

So how do you achieve this? Keep it simple. Draft a one page business summary, introducing your business and its strengths, then outline on the same page, your 5 year plan and why you need funding.  The 5 year plan, should try to show an increase in sales, gross profit and net profit, but keep it realistic. Too big an improvement in any area will make your plan look unachievable. You should summarise your 5 year plan like this:

A O BUSINESS LTD- 5 YEAR PLAN
year	sales	gross profit	gross profit %	net profit	net profit %
1
2
3
4
5

As suggested above and within the same A4 page, you should detail what the prospective funding will allow you to invest in. e.g.; 2 additional staff members, new software and a marketing programme. And try to make it look as if the additional investment in staff etc, will assist your growth and profit plans.

The twenty-four month profit and loss and cash-flow projection.

That was the easy bit. A prospective funder is going to want some flesh to be added to the skeleton plan that you have outlined. Don’t go mad and give them 5 years of detailed data. Take your last set of financial results and current monthly actuals and breakdown for the next twenty-four months, month by month, your Profit and Loss account. Then link the data to your current bank account and try to produce a working cash-flow forecast for the same period, making sure you include the anticipated injection of cash (the loan) and the new costs for which the cash will buy. Linking the two documents together, to show changes on one document will make changes on the other is a little complex, but will make it more credible, particularly if you are sending a soft copy of this document to your prospective funder. Remember, that the 1st and 2nd year end of year figures here should equal the year 1 & 2 figures on your 5 year plan. Finally, if you have the gumption… have a go at generating a balance sheet from the data derived from the end of the 24 month period. If you can tie this in accurately, to really shows you mean business.

So who do you approach for funding?

As suggested above, you should always try your bankers first, as they already know you and the process for obtaining perhaps an increased overdraft or a new loan, may well be quite straightforward. If this is unsuccessful, then you need to find someone who will agree to fund your requirements and at a good rate and post 2008, there are now a whole raft of additional areas to explore. Perhaps the most popular form of business funding now is peer to business lending or crowd-funding.  This is where individual lenders each bid to lend you part of the loan at their preferred interest rate, thus making up the whole loan required with a large number of lenders. Once you loan application has been approved by the Funding Company and a bidding platform has been opened; over a period of days, a large number of individual lenders will build up to the point where the loan becomes fully funded. With new bidders coming in and gradually reducing the overall interest rate. If you leave the fully funded loan right to the end of the bidding process, you will frequently see interest rates similar to those offered by the banks. Loans of this type have become very popular. They are usually web-based, fast and as long as you follow the rules and make your funding proposal attractive will usually be successful. An alternative to this is of course peer to equity lending, where individuals provide equity for your business and are given shares in return. This is a little more complex and is akin to seeking funding from business angels or indeed the ‘Dragons Den’, but this may be an option worth considering if you are prepared to let go of some of your share of the business, rather than burden your business with a repayable loan. There are of course a number of other funding options, notably from local chambers of commerce etc which should be considered, but for sheer simplicity crowd-funding looks to be the way forward.

It goes without saying that I am more than happy to discuss any of these points in more detail if you think that I can be of assistance. Please see our website for details of how to contact me