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Why we are different to other accountants (February 2018)

Our tagline here at Elite MI is ‘We help SMEs to understand and improve their numbers’.

But, how does that make us different to other accountants?

Accountancy firms get the bulk of their fees from compliance work: year-end accounts filing and audit; tax returns and tax planning; payroll and bookkeeping; VAT. We don’t get involved in any of that.

What we do is spend time onsite with businesses with the sole intention of helping them gather accurate and relevant management information (MI) so they can use that information in the correct context to make the best possible decisions for the future.

Every business I am introduced to has poor MI where detail is lacking and is insufficient for what the business needs. Generally, I am introduced because of a trigger point. Perhaps a lender has introduced me because the business is constantly pushing its overdraft. In some cases the business calls me in because they don’t understand why they are struggling. Consequently they have no idea how to overcome their issues.

Accountancy firms usually aren’t able to provide someone of my level of seniority and experience to go and sit in a business on a regular basis and get to grips with what is happening in the business. They just don’t have the resource and the time. We have the flexibility to be able to do that.

Here’s a story about the type of difference we can make. Some details have been changed to ensure client confidentiality is protected.

We were called in to a company by an external stakeholder concerned about the longevity of the business. They were running an overdraft of £250,000 and were in the top 20% of that overdraft all the time. The business was profitable on paper so the management team could not understand why the business was not generating cash.

The business had two main departments, but they weren’t producing monthly accounts showing levels of stock and work in progress, so there was no accurate record of how things stood. Information was very basic and some items on the balance sheet hadn’t been reconciled.

Our first job was to establish how the business was actually performing, so that meant putting together an accurate picture of the previous quarter, getting precise stock and work in progress figures and breaking them down between the two departments.

It then became blindingly obvious that one department was very profitable but the other was losing money. The loss-making department had a number of long-overdue accounts, so we put proper credit control procedures in place and began chasing debts promptly and regularly. Over time, this began to make more customers pay on time.

Meanwhile, we also did a 12 month forecast into the company’s finance requirements, which showed that in the year ahead the £250,000 overdraft was not going to be enough to get the business through for a number of reasons:

  1. The loss-making department
  2. Work in progress was slow-moving and stock levels were too high, so cash was tied up in assets that weren’t liquid.
  3. There were a number of write-offs on old items of stock and some work in progress that couldn’t be billed. Once they were written-off, profit was reduced quite dramatically.
  4. A large tax bill was going to fall due.

Another issue was that there were loans outstanding for fixed assets as well as payments going to the owners for what were intended to be dividends. This is something that a lot of business owners miss: they see £100k of profit but overlook that £50k is going out on loans, another £100k to owners and then there’s also tax to pay on the profits so in reality the cash profit is far less than the owners think and in some cases is not even a profit but a loss.

I predicted that they needed a facility of £325,000, not £250,000, so we re-negotiated the existing facility with the bank. The bank was prepared to sanction an increase as long as the owners put some of their own money in too, which they did.

The end result was that the short term problem of the next 12 months was overcome. The performance of the business improved as they focused on the areas that were making money. Cash gradually improved, the overdraft facility came down and the owners got back the extra money they had invested.

The business is now making more money than it ever has and it’s in a really good position. Over the course of three years we continually made small improvements to the business just by using the numbers that were already there and the reports we put in place.

To understand how MI could improve the performance of your business, get in touch with us today.  A free, no-obligation consultation is offered to all prospective new clients. This is not time-restricted and we are happy to spend as long as it takes to understand your business, its challenges and objectives. If our service is not right for your business, we will be honest and signpost you to another provider who can add value to your company.

Written by Steve Bull, owner and director of Elite MI Limited.

steve.bull@elitemi.co.uk

07940 982060.