Telling the story

The aim of this part of the website is to illustrate financial issues through stories. A cross between a regular cartoon in words, and a blog, designed to entertain, as well as to keep you thinking about things financial.

The episodes come under three main headings - profit, cashflow and budgeting, and build on the things we look at in our training. As you read them, enjoy them, but also think about how they apply to your organisation.

Current Articles

What a surprise! - (budgeting, cashflow, profit)

When I work with South Yorkshire Housing Association one of the questions the assistant FD always asks at the end of the workshop is "What surprised you most about the day?" I'm sharing some of the answers in my next few blogs.

One recent answer was "How understandable it all is. We need to be storytellers, not accountants."

We'd talked a lot during the day about "the story behind the numbers".

Our budgets show the cost of our people, and the resources and equipment they're using in order to achieve tasks.

So we need to go behind the mere numbers and understand who these people are, and what they're doing. How efficient are their processes? Which of their tasks are essential, which ones wouldn't we miss? Do they have the resources and training they need?

Once we understand the people, processes, equipment and resources represented by the numbers, the numbers themselves start to make more sense.

If we want to do more, we'll probably need more people, and our numbers will change.

If we do things in a different way, it will take more or less time, and our staff cost numbers will change.

So your challenge is to understand the story behind the numbers in your budget. Does your budget reflect the cost of the people you need in your team to achieve your objectives? If not, what are you going to do about it?

So budgets aren't primarily about numbers, they're about understanding the story behind the numbers.

Building blocks 4: costs - (budgeting, profit)

In the final part of this short series we're looking at costs. Especially some different methods of cost management.

Clearly managing costs is important to improve profitability and cashflow.

One trick is to identify your fixed costs and variable costs. We expect variable costs to increase as we do more (in the same way as when you drive more miles, you need more fuel). But what are your fixed costs, and how will you make sure they don't creep up as you produce more, or provide a larger service?

Value for money is important. Which 5 things that you do regularly provide most value to your business? Which 5 things that you do regularly cost most time or money? Any tasks in the second list but not the first, are candidates for review to see if we should be spending that much money doing things we don't especially value.

Whilst saving money is good, there are some areas where weshould be spending all our budget. If I don't spend my marketing budget in full, it's bad for my business, as I'm probably not doing what I need to do to hit next year's sales target.

Beware of simply banning expenditure of certain types. A frequent overtime ban can mean that managers overstaff their teams to prevent the inevitable overtime ban sabotaging their targets. A recruitment ban means we may need to use expensive agency staff to fill gaps.

Make sure you understand what you're spending your budget on, and why!

Building blocks 3: sales - (profit)

In this short series we've already looked at profit and cashflow. Clearly sales are a major factor in both! But not all sales are equally good…

"We don't want to make sales, we want to make profitable sales."

I worked with a company whose sales people told me they weren't told the production costs of their products, although they had complete freedom to negotiate the selling price. "How do you know when you're selling for less than cost?" I asked.

"We don't."

Unsurprisingly this company went bust.

Discounts are expensive. Sales people often say "10% discount is 10% less profit".

But they're wrong.

If we buy things for 80 and sell them for 100, that's 20 profit. If we give 10% discount and sell for 90, that's only 10 profit.

So in this case 10% discount is 50% less profit!

The product mix is important too. Different lines have different levels of profit. That's why petrol stations are so keen to sell you sweets and things. If you fill your tank for £60, and spend £3 on sweets, they'll probably make as much profit on the £3 as they did on the £60.

And of course we need to get paid. Our biggest customers often have the biggest discounts and longest payment terms. So - unless managed well - a large contract could do our business more harm than good.

Perhaps a good thought to end on is "We don't want to make sales, we want to get paid forprofitable sales."

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Budgeting, Cashflow and Profit

What a surprise!. One of a series of articles to to keep you thinking about things financial.

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