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Top tips for debt management in business By Hazel Davis
- Devise and stick to a budget
It's easy to throw caution to the wind and either not budget at all, or only use your budget as a rough guide, says Paul Bryant, MD of Set Up A Company. “Budgets need to be carefully thought through, after considering the financial position and cash flow. Once a budget has been allocated, you should do all you can to stick to it.”
- Produce regular profit and loss accounts
Cash flow is one of the biggest problem areas for small businesses and so it's important to
always know and understand your financial position at any moment in time. Producing regular profit and loss accounts (at least once a month) is a good way to keep on top of things.
- Use accounting software
Using accounting software such as KashFlow, Sage and QuickBooks can help you to keep a track of income and expenditure to help you make better decisions if you can’t afford to employ a bookkeeper.
- Outsource rather than employ
Although taking on employees can be cheaper and more secure, it is a long-term commitment and should only be undertaken if you are certain the business can afford the wages, not just now but in months’ and even years’ time. Look into outsourcing the work, using a freelancer, or hiring on a temporary contract to reduce your risk.
- Tighten your belt in the right places
Research shows that businesses are spending more than ever on non-core operations.
Sanjay Swarup, CEO and Founder of SKS Business Services, says: “Declining profits should call for belt-tightening and costs could easily be cut from G&A (general and administrative) functions without reducing the quality of these services.”
- Save money on transfer fees
Andrew Woolley, director, CFX at foreign exchange expert Moneycorp, says: “If you plan ahead Moneycorp offers a service – FORWARD – which allows customers to reserve an exchange rate to purchase a currency to use up to two years in the future.”
- Reward quick payments
Consider offering a discount for quick payment or rebates to regular good payers based on a
percentage of the purchase value. Make sure you keep a close eye, however, on whether the quick payments materialise.
- Claim interest on late payments
You are allowed to charge interest at the Bank of England base rate plus 8 per cent, calculated on a daily basis for each day your payment is overdue. You must outline such a course in your terms and conditions. Sometimes a letter suggesting you will charge interest is enough to ensure a quick payment.
- Keep your unpaid sales invoices in date order
This way, you can see the oldest outstanding invoices
first. Set aside a sacred time each week to
chase these. Make sure you focus on the largest debt first and then the oldest.
- Remember, larger companies operate differently from small businesses
Check whether you need to send a statement as well as an invoice. It’s also worth finding out when a company’s payment run is so you can invoice at the right time.
Finance function is ‘root of small company underperformance’ by Richard Crump
SMALL- and mid-sized businesses are failing to use their finance functions effectively to make important management decisions, a report by CIMA has claimed. The report, compiled jointly with SKS Business Services and Loughborough University, explains that many smaller companies are slow to apply shared services, ‘right-sourcing' and technological best practice.
UK SMEs’ financial systems losing £3.7bn unnecessarily SMEs find RTI costly and unnecessary “The root cause of smaller company under performance is often inefficient use of their finance function. Finance and accounting is too often misunderstood as a ‘bean-counting' operation, when financial analysis and forward-looking management accounts are meant to help you plant and reap more beans,' said Sanjay Swarup, Director, SKS Business Services.
According to SKS, some 45% of SMEs don't use regular management accounts, while use of technology such as accounting information systems, is also limited, as is use of low-cost online technology.
Peter Simons, technical specialist, CIMA, said: "SMEs do not engage management accountants as their larger competitors do, and as such they are missing opportunities. Globalisation and technology can enable smaller companies to transform their finance function, making it more efficient and able to provide better support to management."
Directors Want to be Challenged by their Accountants
In a survey of more than 100 SME and Small Cap companies to determine the most important factors when choosing an accounting firm, directors rated “challenge” as the most important factor. 87% said what they wanted most was to be challenged.
The survey, which was carried out by SKS Business Services (a firm of chartered accountants that provides a unique blend of ‘shared services’ and UK based accounting services), set out to establish what are the most important factors in determining a company's choice of accountant.
Price is a key factor with only 53% of directors saying that they would pay higher fees for better services. However, over 70% of directors expect to get additional business advice on matters such as tax, budgeting and profitability as part of the service.
Most surprisingly, only 55% of respondents actively use monthly management accounts, and it appears that many senior managers are making crucial business decisions without referring to regular real-time financial information.
Ian Herbert, Deputy Director at the Centre for Global Sourcing and Services and Senior Lecturer at Loughborough University School of Business and Economics said:
“The survey shows another side to the funding problems of small and medium-sized businesses. To lend confidently, banks need to know where a business is going and that it is being controlled properly; in other words, that there is a proper management accounting information system in place. Any lack of regular, objective insight into the performance and prospects of a business means potential risk, and risks means higher interest rates, or worse still no funding at all.
Sanjay Swarup, Director of SKS Business Services said:
“Smaller companies have the same need to drive efficiency as the 'BPs' of this world. It would seem that many companies are operating their accounting and finance function using traditional methods and expecting their accountants to come up with radical or magical solutions. They're not using the latest technologies and access to global knowledge to provide clear, comprehensive and regular reports to help minimise cost and improve performance.
Taking this approach enables businesses to concentrate more on growth, profitability and strategy.
By focusing more on core strategies and less on sub-optimal functions such as accounting, SMEs can make immediate savings of £10,000 which for larger companies can rise to several millions.”
The survey also found that trust is very important with comments such as “Trust is what matters most” and “Trustworthy, fast and efficient is what counts” regularly coming up in the survey. But, interestingly, trust is not necessarily based on face-to-face contact. Only 50% of directors said that meeting with a senior accounting partner was of high or very high importance.
Also to emerge in the survey is that a large number of companies feel neglected or not regarded as important enough to get the proper attention they feel they deserve from their accountants. “We find we are neglected by our accountants” or “We're not important enough for them” are just a few of the quotes.
Ian Herbert, Loughborough University, said:
“Until recently, the idea of shared services has been seen as a cost-play applicable only to large companies but, using the right expertise, at the right time, and in the right way, is important to any business. At the Loughborough Centre for Global Sourcing and Services we are seeing more examples of second-tier businesses letting go of parts of their back office administration and it’s not just about cost.”
Herbert went on to say:
“Standardised IT platforms and robust internet connectivity are enabling new possibilities for more imaginative sourcing solutions. The old mantras about being different to other businesses have been kicked into the long grass by B2B platforms such as eBay. The process is the same whether it’s an elephant or an antique stamp! Sometimes, if the business can adapt itself to a good system then the possibilities for quality management accounting information expand not diminish.
For a reality check, look up your buyer history on eBay and ask whether you could get anything like that information as fast from your business accounting system? And then think that someone, somewhere in the world is doing all that for you and you don’t even have to train them, buy them a desk, or invite them to the staff Christmas party.”
Sanjay Swarup, SKS Business Services said:
“Whilst many larger companies are now looking at the country best suited to do their work in order to drive down costs, the benefits of shared services are yet to be fully appreciated by smaller and medium-sized companies. Larger companies use ‘right-sourcing’, which recognises that hybrid solutions often provide the best fit, where value for money is balanced against manageability, risk and other considerations. As long as the work is done by qualified accountants and there is a UK-based team to supervise, the risks are no different to an in-house or in-country team, but there are additional benefits including greater fire power to the finance function.”
The survey was carried out in 2013 with 103 directors in companies in the oil and gas, biotechnology, manufacturing and service sectors.