Strategy

You started out in business to make a profit, so are you? More specifically, which parts of your business are more profitable than others? Is 80% of your profit coming from 20% of your customers? Are some jobs actually costing you money?
 

As your FD, I ask these questions and make sure the information is available to answer them. The results can be surprising and may well lead to a change in strategic direction. 

Do you have enough cash for the next 12 months? What will happen if you take on the big customer? How much working capital will you need to grow at 10% per year compared to 20%?
 

Just because you are making a profit does not mean you are generating cash for your business. I have lost count of the number of business owners who have sacrificed their own income and time to grow their business without knowing just how much cash they need to succeed.
 

So, for your financial strategy, the first thing we do is understand the cash profile of your business. How much cash does your business need to fund £1,000 of sales? What difference does it make if your customers take 10 days longer to pay you? What impact would it make on your business if you paid your suppliers on time?
 

Now that we know the cash profile, we can put some forecasts together to look at the cash needs in the business over, say, the next 12 months. We can identify any times when cash will be short and can consider how best to deal with this, in advance! What we don’t want is surprises when you have to withhold payment or put more money into your business because you weren’t expecting that large VAT bill or the growth of the business means that you haven’t yet generated the cash to pay the wages bill! 

Once we know how much cash your business needs to grow, we can consider whether your funding arrangements are adequate.
 

Is there a core element of your overdraft that should be converted into long term debt?  Is an invoice discounting or factoring facility more appropriate for funding growth? Would it make more sense to raise some equity investments at this stage of the business?
 

There is certainly no shortage of money to invest in entrepreneurial businesses. I will help you determine the best funding strategy and provide the investors/funders with the information they need to lend/invest.

Winning that big contract may not bring the benefits you were expecting. What are the financial implications on the business? What additional resources will you need and how much will they cost? Have you assessed and mitigated the contractual risks.
 

Your financial strategy should incorporate all of these points. But what if you didn’t win the contract. What was the real reason?
 

Was it because the customer didn’t feel you had sufficient resources or credibility to fulfil on your commitments. Your external accountant may be keen for you to reward yourself for having a good year in the form or bonuses, dividends and/or pension contributions but now that you’ve extracted all the profits from the business, what does your balance sheet look like? I will help you understand the advantages your large competitors rely on when they compete with you and what actions you can take to level the playing field.

If you would like an effective sounding board for your strategic thinking....