Finance expertise
turning great concepts into brilliant businesses

If you have and / or want to know how to get your ideas to stick in peoples minds then read Made to Stick by Chip and Dan Heath.  Another great read is Getting More by Stuart Diamond recommended to me by Trevor Herbert of Hobbs House Bakery.  Essential reading for anyone who has to negotiate.  Which is everyone.  We all do, everyday.

A friend recently gave me her well thumbed copy of Business Model Generation by Osterwalder and Pignear and told me to read it over my Easter holiday.  After overcoming my initial surprise at the …  generosity (a creme egg would have been fine) the slightly larger hurdle of the business-schooly title (I left that stuff behind long ago) and encouraged by days of rain in Gibraltar, I read it and have to confess … I found it fascinating.  A great thought stimulator.  (You are a wise as well as generous lady Ms L, though please bear in mind the creme egg thing.)  If you want an insight into how to construct your business to maximise revenue and minimise costs get yourself a copy.  According to the authors this will make you ‘a visionary, game changer or challenger’.  Or a combination of.

What strategic financial information do you need to grow your business? By strategic I mean over and above the standard set of information that your book keeper or finance manager can provide.

Well, here’s a short list I’ve come up with:

You wouldn’t start a journey without knowing your destination and having some idea of your route so why would you start a business without a plan?  Think of a plan as a way of mapping out how you want your business to develop and grow in the future.  It’s not just for you though: it’s also a great way of communicating this to your team. If they understand where the business is going then there’s a better chance that they will all pull in the same direction. Using your plan to track performance against financial targets also helps you quickly identify when parts of the business diverge from the plan. You can then either take corrective action to bring it back on track or come up with a new plan based on the new reality.

To run a successful business you need to know where to focus your effort. Which products / services are making the most money? Are there any which are actually losing you money? Focussing on the profitability of your products / services allows you to invest to sell more of the profitable ones and ask some hard questions of the loss makers.

A step beyond this is to focus on the profitability of individual customers based on the products they take, the sales channel they use, their credit terms and how easy they are to manage. Do you know which of your customers are generating profit and which need corrective action?

Growing businesses need more cash than stable ones:

• They need to invest in marketing and people for future growth;
• They need to keep paying the bills when sales increase but, because of credit given to customers, cash receipts are lagging behind;
• They may need to build up stocks if they are selling goods.

Depending on the business, this extra cash might be available from profits. If not then the business may need to consider external funding. We’ve written a paper on investors and sources of funding which covers this so I won’t go into too much detail. I will, however, say that you should make sure that you don’t leave it till the last minute: it takes time to raise cash. If you’re going to need funding, plan how much you’ll need, when you need and what type of funding is best for the business well in advance.

So that’s my choice: Future, Focus and Funding.  If you have a different view, why not add a comment below?

Yesterdays announcement of a fall in CPI from 4.4% in February to 4.0% in March may mean that the rate of consumer inflation has peaked.

This morning I read that Goldman Sachs have indicated that commodity prices may also have peaked for the time being, and on the basis of their comments the price of crude oil has started to come off. Nevertheless it is worth noting that raw material input prices have risen by 14.6% since last March, according to the Office for National Statistics.

The enormous gap between the input price inflation of 14.6% and the inflation rate that is being passed on (4.0%) can only mean that local costs, principally wages, and margins are suffering.  I was especially interested to read that one of the main reasons that CPI fell this month was because food and non-alcoholic beverages actually decreased in price by 1.4%, primarily as a result of supermarket led offers.

The experience of the past 24 months has shown just how vulnerable the UK economy and businesses are to external price pressures, and how influential large organisations, such as supermarkets, are in controlling it.

Is speed a strategy?  Alan Webber (in his book ‘Rules of Thumb’) argues it is.  (The book is well worth a read by the way – 52 useful rules of thumb for business life.)  His was inspired by reading about US fighter ace John Boyd’s recipe for success – passing through the OODA loop as quickly as possible.  Observe – Orientate – Decide – Act.  I think he’s right.  The faster you pass through this loop the more successful you’ll be as no-one ever really knows the outcome of an action until trying it.  And the sooner you try it, observe the outcome, and amend what you’re doing to suit, the quicker you’ll learn what works best.

Research by Bill Bolton and John Thompson (published in their book ‘The Entrepreneur in Focus: Achieve Your Potential’) identified entrepreneurs as confident, optimistic, compulsive, courageous, persistent, and extroverted; with high energy, drive, urgency and initiative. Does this sound like you?