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

Warning signs 6 - (profit)

This blog highlighting early warning of potential financial trouble ahead is about the sales team.

Every sales person knows their products and their customers.That comes with the territory.So if you ask them "Who's our biggest customer?" or "What's our best selling product?" they'll know the answer, probably without having to think.

But we aren't in business to make sales, we're in business to make a profit.Our biggest customers are often the ones with the biggest bulk discounts, which eat into profits.

For example, if it costs us 70 to make something, and we sell it for 100, we make 30 profit.But if we give a 20% bulk discount, we're selling it for 80, and only making 10 profit.The 20% discount cost us 66% of our profit.We have to sell 3 times as much to make the same profit that we'd make at full price.

And if our customers don't pay promptly, we end up with cashflow problems - and poor cashflow is the biggest cause of business failure.

So it can be illuminating to ask "Which customer (or product) do we make most profit from?"It's often not the biggest…

We can also ask "Which customers are the slowest payers?"Guess what?This oftenis the biggest customers!

So if we focus on the biggest customers, we're being distracted by sales revenue, often at the expense of profits and good cashflow.

There's an old saying: "Sales are vanity, profit is sanity, and cash is reality."

Warning signs 5 - (budgeting, profit)

We're looking at indicators that our business may be heading for financial trouble. This blog is about the internal monthly financial reports.

Is your internal financial report too long?

If it is, fewer people will read it, and those who do go through it will struggle to find the key information.In both cases fewer people will take appropriate action as a result of the issues highlighted within the report.

I did some financial training with a group of directors.We went through their Board financial report; all 16 pages of it.We highlighted thereally important information within it: only about 12 lines of information!At the end of the day the Finance Director said "The report needs to be shorter, doesn't it.How about a single page?"One of his colleagues replied "How about half a page?"

And the director was right: half a page should be long enough to highlight the really key issues that enable appropriate action to be taken.

Another accountant told me that their Board report had grown to 100 pages over the years.That's not a report, it's a book!One summer they were short staffed and didn't produce the report for a couple of months.None of the directors asked where the missing report was…

So if our monthly report is too long it will either go unread, or fail to highlight the key issues requiring action.

How long isyour finance report, and how well does it highlight the key issues?

Warning signs 4 - (budgeting, cashflow, profit)

At the start of a finance course I often ask "What's your financial impact on the business?"

This is often a totally new way of thinking for people, and that's a worrying warning sign.

Every business is ultimately in business to make money: if we don't cover our costs, we will fail.We have to have a good product or service; satisfied customers; loyal and committed employees; effective marketing; etc; but if we don't make money we'll fail.Even "not for profit" organisations have to make money. And we have to have enough money in the bank to pay our bills as they fall due.

So if financial success is an imperative, and our people haven't thought about what financial impact they have on the business, that's scary!

Start asking your colleagues this question.Begin with the directors!How many don't have a coherent answer?

This ties in with the first warning sign we looked at: managers glazing over when finance is on the agenda.It displays a general lack of awareness about the most fundamental requirement of our business.

So what financial impactdo we have?

Well, we all take a salary out of the business.If we're in service delivery or production, we're making money as well.But if we're an overhead we're a financial drain.So how do we add value to the business?How do we help make more money, or reduce costs elsewhere?

If we don't know, are we worth our salary?

Archive Articles

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Budgeting

Cashflow

Profit

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Profit

Warning signs 6. One of a series of articles to to keep you thinking about things financial.

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