Expert Advice

Tricks of the trade

The pandemic has forced financial controllers to develop new skills as well as improving old ones. As we know, even the smallest business can avail of digital solutions such as cloud-based accounting systems and forward-thinking financial controllers have seen this as an opportunity to use data strategically and transform it into business intelligence.

The importance of cash management and financial risk management has been underlined time and again over the last 12 months. But this period has also illustrated the value of working out how businesses would be affected by a shock – even one on a smaller scale than a global pandemic – and the options available to guide them through such events.

Flexible approach vital

The coronavirus crisis has reminded us that things can change quickly in business, even during seemingly quiet periods. Financial controllers have to be prepared for change, whether that change is happening within their organisation or in the wider world.

The best finance professionals combine a growth mindset with the perspective of a business analyst. They increasingly have the ability to analyse data and use business intelligence platforms, and are focused more on predictive analysis than the more traditional descriptive analysis (in other words, the ‘why’ rather than the ‘what’).

For example, there is no reason why financial controllers cannot produce reports for decision-making purposes as well as for accounting or tax reasons, adopting a more proactive approach to anticipate business risks.

Learn to speak up

There is no point generating business insights from financial data if you are unable to convey them to the business owner. Communications skills might not be high on the list of qualities demanded of financial controllers, but they are important – especially in growing businesses where the role will involve interacting with people other than the company accountant.

This change reflects the role of the financial controller as a business advisor, using their knowledge of the financial health of the company to provide guidance and act as a sounding board for management.

There will be times when the financial controller has to act as a representative of the company and communicate how its strategy relates to its financial outlook and performance. When dealing with financial institutions it is important to build confidence and a polished presentation can go a long way.

Accept your differences

Businesses are increasingly recognising the value of workplace diversity and financial controllers have much to gain from developing diverse skills and competencies. However, this is difficult in the current climate where everyone is working from home.

Businesses that have yet to digitise their financial processes will find this particularly challenging. However, all companies need to think about how they recruit and train financial staff to make sure these individuals are comfortable with technology.

On this subject, accounts systems should also be reviewed on a regular basis. Transitioning to a cloud-based accounting solution such as Big Red Cloud will streamline the management of receivables and payables and enable financial controllers to focus on helping business owners increase efficiency.

Getting on with the job

One of the many consequences of lockdown has been the realisation that employees can be trusted to work from home. Businesses that use the lessons learned over the last nine months to get the most from their staff will continue to benefit long after we return to ‘normal’.

Business managers tend to fall into one of two groups – those who don’t believe that employees can be relied on to get on with their jobs without being seen or monitored all the time; and those who believe that if workers are given proper training and direction and a degree of flexibility they will just get on with it.

Made not to measure

Productivity is one of the most widely used words in business. Politicians fret about what we produce as a country because GDP is a measure of how well (or badly) they are managing our economy.

But many small companies don’t see the difference between productivity and ‘presence’ and assume that if they can see their staff, they must be doing what they are supposed to be doing. People who never miss a day of work are praised, but could their managers say for sure that they were more productive than colleagues who took time off when sick or dealing with a family emergency?

One-size-doesn’t-fit-all

Any worker can become less productive if they feel they are not supported by their employer. This can also lead to feelings of isolation, which can have a negative effect on mental health.

Video and audio conferencing has enabled companies to connect their staff during lockdown, but the timing of these calls need to reflect the fact that some employees might have childcare or caring responsibilities. By working with them to agree a flexible work schedule on a case-by-case basis, employers can empower them to work when they are most productive and really take charge of their working day.

It is also important that people working from home are not always thinking about work. This can be tough for someone working from a kitchen table, but they should be encouraged to take proper lunch breaks and log off at sensible times.

Technology can help

Surveillance software enables companies to monitor the activities of their staff during working hours, such as the websites they visit and the emails they send. But any company introducing such a system should first explain to its workers why it is being introduced and how it works.

If employees feel that having their activity tracked will help them work more flexible hours they will feel better about the idea of being under surveillance.

In the early months of lockdown we saw a massive surge in technology adoption as both consumers and businesses moved online. For those businesses that have not already done so, this is the perfect opportunity to implement a cloud-based accounting solution such as Big Red Cloud.

The demands of running a business are considerable. Making it easier for employees get on with their jobs will free up time that can be used constructively to plan for the future.

Time to share

Obliging banks to share customers’ account information was designed to encourage the introduction of new financial services. But with most open banking services aimed at consumers rather than businesses, small enterprises may be unaware of the potential benefits.

Open banking is a broad term that refers to initiatives that require banks to make bank customer account data available to third parties – with the consent of the account holder of course.

These third parties are then able to offer additional services such as allowing customers to have a single view of all the accounts they hold at the same time (even if they have accounts with different banks), or giving a lender or investor access to income and expenditure history over a specific period.

Such services are not necessarily new, but under open banking they are easier to access and more secure.

Bringing it all together

The concept of making customer bank account information available to service providers other than their bank was a key element of the second Payment Services Directive, a major piece of EU legislation known as PSD2.

One of the objectives of the directive is to make it easier for account holders to manage their money, which has obvious appeal for small businesses who need good visibility of their financial position.

Since late 2018, Irish banks have launched APIs or application programming interfaces that enable third party service providers to develop apps and services that leverage each bank’s customer data. These third parties are either payment initiation service providers (who can connect to the account to execute a payment) or account information service providers, who offer financial management apps.

What’s in an app?

The economic turmoil caused by coronavirus means businesses of all sizes have understandably been focused on achieving the best possible visibility of their bank data. Open banking apps enable these businesses to identify issues early and take remedial action.

Businesses can also benefit from intelligent automation where the use of manual processes such as payment status tracking and reconciliation can be lowered, reducing the scope for manual error and increasing operational efficiency.

Standard payment services should become cheaper, while the ability to give lenders access to historical financial data should simplify the process of applying for trade finance. Down the line, machine learning and predictive analytics could assess the likelihood of an invoice being paid on time, reducing dependence on expensive cash flow products such as invoice finance.

Open for business?

Reluctance on the part of some businesses to embrace open banking services can be put down to a cautious approach to working with new service providers as well as a sense that existing processes are working just fine.

But there are obvious advantages to being able to access account information regardless of location – a feature that should be particularly appealing to users of cloud-based accounting solutions such as Big Red Cloud, who can already access their financial accounts remotely.

Lessons in finance

Applying for funding can be a nerve wracking experience. But with careful planning you can maximise your chances of getting what you need.

The first step is to be realistic. Chasing sources of funding you have little chance of securing will not only dent your confidence – it will also take up time that could have been better spent on the business.

If you are applying for a grant, estimate how much time you will spend on the application process and what that time would be worth to the business. If you can find out what percentage of applicants are typically successful this will help you decide whether it is worth pursuing.

No room for false modesty

A realistic payment plan linked to cash flow forecasts will help funders understand if the amount requested is affordable. But this doesn’t mean you have to be humble in your approach when seeking money either from a bank or a private investor. One of the most common mistakes made by first-time fundraisers is not asking for enough money to take their business through to the next phase of growth.

Another potential pitfall is accepting an offer without properly checking the terms and conditions. Some contracts may prohibit the business from borrowing from another finance provider, while if you are offered a larger facility than required you need to make sure you are not charged for finance that is not being utilised.

Make it personal

When approaching a bank or investor it is important to personalise your approach. Make sure you have done your homework and ensure your business matches up with the core criteria and region of your target investor.

Give yourself enough time to prepare detailed information and to explain what the funding is required for and what it will achieve – different forms of funding are appropriate for cash flow support, capital expenditure or business growth. Work out where the funding should take the business as this will provide clear business targets going forward.

Don’t leave it too late

The need for funding should be flagged early by good financial information. If the need for funding is driven by a fundamental flaw in the business (for example, overheads are too high, margins are too low, or the target market has changed) it might also be a good time to look at the overall health of the business, perhaps with input from an independent observer such as an accountant.

When businesses wait until they reach a cash flow crisis to seek funding they make bad decisions and usually end up having to take whatever is on the table rather than the form of funding most appropriate for the business at its current stage of development.

Finance providers and investors will expect business owners to demonstrate a robust understanding of their cash flow needs when applying for funding. Using a cloud-based accounting solution such as Big Red Cloud will give you this level of insight.

Don’t waste your money

Minimising outgoings is a difficult task for companies that have already implemented cost-cutting measures. The good news is that there are some less obvious ways in which you can minimise your overall costs without damaging customer service.

A good first step is to talk to your employees – if you are looking to make changes it helps to get them on board and they may even have their own ideas on how to reduce waste.

Older staff can be resistant to change, so if you are serious about saving money it might be worth investing in training to demonstrate how everyone can benefit from doing things differently.

Driving down costs

Almost every business relies on transport to some extent, whether that is for making deliveries or picking up materials. One way of reducing driver costs as a percentage of turnover is to use telematics technology, which can pinpoint inefficiencies by showing you how much fuel is being used per vehicle and each vehicle’s average speed.

The data can also help identify driver behaviour issues, for example if a driver is braking harshly or exceeding the speed limit. These issues can then be resolved through driver training, which will have a positive impact on reducing fuel and vehicle maintenance costs, as well as improving general road safety.

With petrol and diesel costs being so unpredictable you might also benefit from using a company fuel card. While this will limit where you can fill up, you should get a better price.

Cutting your cover ain’t worth it

We are all familiar with using price comparison sites to shop around for the best deal on our home insurance, so there is no reason to take the first business insurance quote you receive or assume your existing provider is offering you the best deal.

Monitoring insurance costs to ensure they are appropriate for the risks you face can reduce the amount you pay for your cover, but you must also accept that it might push up your premium where existing cover is found to be inadequate.

The potential cost to a business that chases the lowest premium without ensuring that its policy provides adequate cover can be devastating in the event of a claim.

Prevention is the best cure

Likewise, don’t be tempted to delay scheduled maintenance of equipment or vehicles. Machines that receive regular maintenance operate more efficiently and use less energy and are less likely to break down.

A proactive maintenance programme reduces the chance of a vehicle malfunctioning on the road and causing an accident. In addition, properly maintained vehicles are on the road more and cost less money in repairs over time.

When it comes to measuring the success of cost-cutting measures, the proof is in the pudding. By examining the data from a cloud-based accounting solution such as Big Red Cloud you can quickly see what is working – and which measures are not producing the desired result.

Don’t sell yourself short

In our last blog post we looked at the merger and acquisition process from the perspective of the acquiring company – now it’s time to consider how to make your business an attractive proposition for potential buyers.
A purchaser will look favourably on a business which is on a strong growth path but with significant, demonstrable potential for further growth in the near future. Good quality, long term contracts with a significant amount of time to run will support the value of any business.
Make sure any outstanding legal or accounting issues (no matter how minor) are addressed before you go to the market and if you can’t do this, at least present the issues and possible solutions in a proactive manner at the outset.

Remove the roadblocks

The length of the sales process will be determined by the level of competition and whether you are helping someone to buy the business or are selling it hard into the market. In the former situation you might be dealing with one or two buyers, allowing them to get familiar with the business and proceed at their own pace.
If there are a number of potential purchasers who are keen to get the deal done you can generate some competitive tension, which will help sell the business hard into the market and create a fast paced process.
The more information you can make available the easier and quicker everything will be. However, your ability to drive a deal will be the single biggest factor in determining the length of the process. Experience counts here and while you may not have sold a business before, your acquirer may have been down this road before.

Get some help

This is just one of the reasons why entrepreneurs employ specialists to help them manage the selling process. For a business to continue to be attractive to a buyer it needs to continue to trade as normal while the deal is being finalised and if managers are involved in the process they could be distracted from the day-to-day running of the business.
One of the roles of the advisor is to communicate between the business and the prospective buyer. If the management team have to go back and forward with information and responses to follow-up queries progress will either slow down or the business will suffer.
Business specialists will know how to generate interest and can act as a buffer between buyer and seller if discussions become heated, as they often do when an entrepreneur feels their business is being under-valued. They also have a role to play in the valuation process.

Timing is everything

A detailed understanding of the financial and commercial circumstances of your business and the sector in which it operates is key to determining the right time to commence a process. A cloud-based accounts package such as Big Red Cloud will give you a good idea of what kind of shape your business is in.
And while your business might be ready to be sold, the market might not be ready to receive it – you must ask yourself who your buyer audience is and are they ready to do a deal?
Although there is little you can do about market conditions, they may look like a risk factor in a buyer’s eyes. If you can present a credible financial plan that an acquirer can fulfil, the perceived risk can be reduced.

There is a lot to be said for supporting Irish businesses at any time, but as companies up and down the country come to terms with the changes forced on them by coronavirus there are additional incentives for giving your custom to enterprises created, owned and managed right here in Ireland.

The SME Recovery initiative recognises the value of small businesses to our economy, noting that they represent 99.8% of active enterprises, support two-thirds of total employment and are responsible for more than 30% of all exports.

We are all familiar with the multiplier effect of spending money locally and how every euro spent generates many more euros across the economy. This is as true for accounting software as it is for any other industry and starts with identifying the right accounts software for the job.

No sensible enterprise would trust its books and records to an accounting software company  that doesn’t understand its  business or the industry it operates in. So it similarly makes sense to use an accounting system that was developed based on feedback from Irish companies, reflects the nuances of our taxation system and is supported locally by people who understand how this system works.

As we explained in a recent blog, our VAT system is not only complex – we also pay one of the highest levels of standard rate VAT in Europe, which means that even a small mistake on a return can prove costly.

We also have to accept that the way people work has changed. A recent Institute of Directors in Ireland survey found that fewer than one-in-eight business leaders believed all staff would be back in their office or workspace once COVID-19 lockdown was fully lifted.

This survey suggests some form of remote working will become the norm. Again, Irish Accounting software companies are best placed to understand what this means for local businesses and – equally importantly – their employees. As the chief executive of the Institute of Directors in Ireland points out, business leaders will need to be agile to allow for these changes.

New work patterns make access to local support more important than ever. When they have an issue, customers want to talk to someone who knows the market they are operating in and can provide practical solutions, not like the foreign software companies not based here.

This doesn’t just mean making knowledge and information accessible via how-to guides and FAQs, although these are important features. It means being on the other end of the line when customers need help, working with them to ensure their accounts run smoothly.

Accounts are not something you can afford to think about only for a few days each year and ignore the rest of the time. With so many small Irish businesses facing cash flow problems it is vital to know exactly where you stand, which is where a cloud-based accounting package like Big Red Cloud (that can be accessed from any location) comes into its own.