resilienceDo you have any clients who have built a reasonable business but the owner has run things ‘their way’ – often by instinct?  Perhaps too much time is spent firefighting?  Or maybe cash flow could be more predictable?

While instinct is important, alone it may not be enough. Especially when the business grows, changes or becomes more complex.  Or when the owner is looking to take a step back (say prior to selling the business).

And for those who are contemplating a sale and are looking for top dollar – buyers won’t want to see that everything is in the owner’s head. They will be looking for insights into the business, the risks and opportunities and prospects. A lack of insight and visibility may put some buyers off and could lower the price.

Not everything in this article will be feasible for every company, but hopefully the general themes will be helpful and there will be some takeaways.

Strategy

Day to day pressures can lead to the big picture being missed. There are lots of influences on business performance. Stepping back and thinking about the various risks and opportunities should lead to smarter decisions.

If you are thinking about selling then the main risks and opportunities are likely to feed into a buyer’s assessment. The resilience of income and growth prospects will be especially important.

Follow through

While strategic planning should set the direction, plans need to be put into practice. Resilience requires effective execution including:

  • Careful planning
  • Setting benchmarks and milestones
  • Monitoring, after making sure that useful information is available

Culture

An inclusive culture should improve the chances of plans becoming a reality.  New initiatives tend to work best when there is staff ‘buy in’ and when suggestions for improvements are welcome.

However things don’t always go according to plan. A culture where staff aren’t afraid of letting the bosses know bad news can prevent a problem becoming a crisis.

Skills

In a small business it can sometimes be a case of ‘all hands on deck’ and people can end up doing things outside their comfort zone. This can lead to inefficiencies, such as wasted time, missed opportunities or unnecessary leakage.

Training may help. However experienced consultancy support can provide a fresh perspective and help the team up their game. It is also worth thinking about outsourcing.

The financial stuff

Cogent management accounts provide insights into how the business ticks and should inform decision making.  I have previously written about my 4Rs of management accounts (relevant, readable, reliable and ready) – there is a link at the end of this article.

Strategic plans need to be expressed in numbers (projected balance sheets, profit and loss and also cash flow statements for at least 12 months).  This will help ensure that the plans are financially viable.  It will also provide a benchmark for assessing performance – which should allow problems to be quickly identified and addressed.

Being focused on cash is an important part of resilience:

  • The bank balance can be regarded as a barometer. If cash turns out to be below expectations it may point to a problem that needs to be addressed.
  • Targets and monitoring of debtor days etc help maintain a focus on controlling cash….
  • … as does preparing a weekly rolling 13 week cash forecasts

Some businesses also prepare financial forecasts looking beyond the 13 weeks to give even more focus on where the business and the bank balance is heading.

Selling a business

A strategic review well in advance of a sale can allow changes to be made to make the business more attractive to buyers. On the ball financial management is likely to lead to a smoother sale process.

While sales do occur where the financials are lacking, there may be a fewer interested buyers.  Those still interested may take a view on the financials, but there could be a trade off in terms of price.

Cash that’s surplus to normal requirements is often added to the headline price. Efficient cash management should lead to a bigger cash surplus. However agreeing the normal requirements can be tricky; to support the calculations and negotiations an improved track record should be established well in advance of the deal.

Wrapping up

Improving resilience is likely to be beneficial whether or not a business sale is on the horizon. However those day to day pressures can make it difficult for owners to step back on their own. External support can provide a fresh perspective, the skills and focus to help.

You can read about the 4Rs of management accounts here.

 

This article is for general information and interest and may not be comprehensive. Specific circumstances will also vary.  Neither Camrose Consulting Ltd nor the author accept responsibility for any loss arising from any person or organisation acting or refraining from acting based on information or opinions contained herein.