We would always encourage our clients to have their numbers up to date. If you don’t know your numbers then you are not in control of one of the most important parts of your business. After all your business is about the numbers, the margins, profitability, gross profit, net profit and cost of sales. If you know a year later what your profit was in 2019 then that information is not much value to you. In fact that information is more of a historical document and only useful for compliance purposes so that you can pay the correct taxes and give to your bank to show that you have proof of what you are making or not.
So what are the benefits of having up to date numbers?
Most businesses need finance to grow. Whether that is for the purchase of a premises, machine or vehicles the first port of call is usually the local bank manager. Apart from the application form you will need to present Tax clearance, your most recent set of accounts, a business plan and up to date cashflows for the business. Given the Covid 19 pandemic, it is now very likely you will also have to present a projected Profit & Loss account for the next 12 or 24 months and a cashflow projection to the end of the current year. You may also be requested to document how you have dealt with the current crisis, if you have been fortunate enough to be able to continue to trade.
In times of greater uncertainty the banks are going to be more discerning in terms of who they give out money to. They will want to know that the application is coming in from a business that has good repayment capacity, has a proven track record of repaying loans and has ticked all the boxes for them in terms of the numbers presented. First impressions will last here and you will need the support of the local bank manager to get the funding application approved. Having up to date numbers, like a recent set of management accounts and realistic cashflows done based on the up to date numbers will paint a very positive picture for the bank. The picture you are painting is that you know your numbers, they are up to date and therefore future cashflows and projected profit and loss accounts and balance sheets are based on realistic numbers.
Cost of Finance
There are many good loan schemes available at the moment from the SBCI and Microfinance Ireland. Two schemes that we are quite familiar with are the Covid 19 Loan scheme and the Future Growth loan scheme from the SBCI – see link attached https://sbci.gov.ie/
These are government backed loans that have favourable interest rates – no more than 4% for the Covid 19 Loan scheme and as low as 3% for the future growth loan scheme. Also there are many more favourable elements such as no requirement for personal guarantees up to certain amounts and interest only repayment options in the early stages. There is not an infinite amount of finance available through these schemes. For example it is our understanding that AIB & BOI have already allocated their portion of the Future Growth Loan scheme and that KBC would still have some availability for the type of businesses they work with.
The point is that the businesses that are on top of their numbers will be able to get this type of finance more easily than those that are not because they will be able to submit applications earlier. They already have up to date figures so will spend less time getting the application in. You may have heard the saying that the early bird catches the worm! Those that don’t have up to date numbers could be at the mercy of an overworked accountant having capacity to bring everything up to date and therefore very much out of the control of the business owner.
Those businesses that can get cheaper finance over more favourable terms are in a stronger position than those that don’t. Those that don’t will pay more for the finance, so more of their money is being used to repay the borrowing and therefore, with all other things being equal, will be less profitable. If you are less profitable than a competing business that doesn’t mean you don’t have a good business but it does mean that your competitor has more money to invest and grow even stronger so over time should outgrow your business. The more profits the business has the more money that business has to pay higher salaries and benefits to attract the best people and more money to invest in the systems and processes that will drive that business forward.
Making Business Decisions
Are you making business decisions based on up to date or historic numbers? If your numbers are up to date you will know what profits you had in the last month or quarter depending on the frequency you prepare management accounts. If there was a sudden dip in profits you will be able to see where that came from and make decisions that can help you rectify it. You will also be able to analyse other key numbers in the business such as your gross margin, your wages percentage to sales and other key numbers for your particular business. This can throw out all sorts of useful information such as a wages cost that is above normal, good profitability but little cash in the bank, average cost of servicing a customer and lots more. Based on these numbers you can then decide to change things so
- You work on staff numbers, staff shifts and rosters
- Reduce debtors days [how long it takes you to get paid]
- Did a sales promotions increase the bottom line or cost you money
- Is it too expensive to service some clients so you stop working with them
Not only will you have up to date numbers but you will be able to compare these numbers with the numbers from the previous month or quarter or the same month or quarter from the previous year. This will help you analyse trends and enable you to see where your growth is and if that growth is in line with the expected level of growth and your expected sales target for the current year. It is possible to drill down further into the numbers to see what is driving the growth and what products are you selling more or less of. This will mean that you can target your marketing and sales towards driving sales in a particular area.
Cost or Investment?
What category do you fit into? Do you see the accounts for your business as a cost where you have to get the accounts done because you have to do a Tax return and you have to file the accounts with the Companies Registration Office [CRO] Or do you see that the money you spend on your monthly or quarterly management accounts as an investment that you can get very useful information from which will give you the confidence that you know your numbers and that those numbers will help you make good business decisions and help you to grow the business. You could be in the former category that has a very good business but with some more investment in the finance function you can equip yourself with the tools to make that business even better.
For us as accountants it’s very exciting to be working with business owners who are happy to invest in their finance function and see them using the information they get to make decisions that help them improve. We recognise the value in having a modern bookkeeping system in place and that is why we are working on a project to get our clients onto Receipt Bank https://www.receipt-bank.com/eu/
Good bookkeeping will lead to up to date numbers and quality information for the client – See our earlier blog on Bookkeeping and getting it right from the start https://www.comerfordfoley.ie/blog/post/10252/Bookkeeping--Getting-it-right-from-the-start/
As Charles Darwin said “It is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change”
Knowing your numbers can lead to survival now and growth in the future.
If you would like to find out more about how we can help you please give Deirdre a call on 051 396703 or contact any of the team here