Steven Mugglestone

The more I learn, the less I know

Posts Tagged ‘audit

Finally, a relevant business audit that helps a business and owner survive and prosper:

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Audits are sometimes considered to be nothing more than a signature on carefully worded statement, which may or may not mean the accounts are seen to be true and fair. McGregors Corporate, an Independent Entrepreneurial Firm of Chartered Accountants and Business Advisers, based in the Midlands are trying to address this negative and have developed and launched a business audit service, which can be adopted either as part of their normal audit service or can be taken up by non-audit businesses wishing to review their business in order to grow.

The innovative and very pro-active service has been developed from the approach that larger businesses’ finance directors would adopt to seek to manage, control and grow an organisation.  It has also been developed by a team of finance and business professionals with relevant and real business experience, rather than from an accountant or auditor.  McGregors see it as a valuable tool that will seek to differentiate them from other accountancy businesses and allow them to compete with the national firms.

Either as part of an audit or as a two day review of a business, the approach and report seeks to cover the following areas of practical business and finance advice for growing SMEs:

The Personal Position and Future

As part of the review, the personal position of the business owners are put into context as a personal balance sheet of assets and liabilities and after understanding and discussing future aspirations, a relevant plan of protection, wealth management and growth is proposed, with a keen eye also kept on family matters and wealth as well as either succession or future exit and sale issues for any business.

Seeking relevant business support

As well as ensuring the relevant financial statements are compliant with laws and financial reporting standards, a review and plan of all tax and financial compliance will suggest efficient ways to ensure that neither filing deadlines are missed, but also that financial statements give the right message to all stakeholders, including shareholders, bankers and finance companies, customers and suppliers.  In a world that is allowing larger businesses to avoid the necessity of a formal audit, the financial statements are still the most publicly available and used document that a business provides about itself and who they are drawn up and what they include and say is still very relevant to the success of the business.

A review and suggestions of even the most basic of tax plans will provide valuable year on year tax planning advice, which will provide significant savings to any business.  This will ensure that you address all relevant tax releifs available to a business including pension contributions, R&D tax relief, use of limited liability partnerships for growth as well use of business cars, to note a few key savings.

A review of either other compliance issues may suggest outsourcing of HR, health and safety and legal areas would mean that the business can ensure that it complies and deals with all relevant laws, at a manageable cost.  Without this, the business may be facing significant risks that may prove to be too costly for the business to deal with, if left not dealt with.

A basic review of terms of business, contracts and credit control procedures may bring to light a number of issues, that again may prove costly to a business.  Positive, but firm credit control processes and documentation will improve cash flow, which is the life blood to all businesses.

Relevant and real improvements to operations

Sometimes a business owner cannot see the wood from the trees as they are entrenched into working in rather than on the business.  An independent view and suggestion of some relevant controls which provides controlled delegation, will free up key individuals to concentrate on what they do best.  It is often noted in the press that police need to be freed up to deal with crime directly and not get sucked into administration.  The same issues arise in businesses as well.

Does your financial reporting provide relevant information, in order to manage and grow your business?  With relevant key performance indicators and summary information of what matters, this can be achieved.  Benchmarking tools are also available to help a business understand what areas need to be addressed, working on improvement on poorer performing areas while maintaining what is good.

Form benchmarking to a relevant tendering of new suppliers, profit improvement can be started and maintained.  Many businesses do not choose with most cost effective supplier as they never spent time understanding their usage of the supply, both products and timing issues, and so selected the best headline prices.

Increased debtors, increased stock and other working capital areas mean reduction in cash and cash flow.  With relevant and firm credit procedures and understanding of stock and delivery requirements, this can be improved providing much need cash and improved cash flow to a business.

Where is it all going?

Businesses do have a strategy, but some forget and get caught up in just surviving.  An opportunity to stand back and consider what the end game is, will reveal issues on current and future investments in capital and people.  As part of this longer term tax planning can be considered, again utilising limited liability partnerships for growth and seeking the sue pension scheme routes for property and major capital expenditure.

After tackling the day to day risk issues arising from employment, health safety and other compliance areas, businesses need to look at other risk areas around what they do and supply and look to adopt appropriate plans to control and mitigate those risks.  In the extreme many businesses have failed following the aftermath of a major problem or disaster rather than the issue alone and this needs managing.

What is the timetable for all of the strategic activity?  A little understanding of this will have major implications as to the development of the business, its capital expenditure and its funding.  These areas should be appropriately considered and a third party view will provide some light and observations on this and provide some solutions as well.  Funding issues can again be raised and addressed, with appropriate funding obtained for relevant areas over appropriate timescales.

Finally either succession or exit issues need to be considered and managed appropriately.  Succession requires appropriate training, experience and hand-over and exit also required appropriate consideration (How to maximise the value of your business, the good, the bad and the downright ugly).  These areas need time and consideration and many of the issues will ensure that the business will improve anyway, irrespective of any future succession or sale.

The key points about a relevant business audit is that it seeks to put a business into context of what issues and improvements can be achieved and following only it provides goal posts to that improvement and achievement.  Some observers have openly questioned the benefits of an audit, other than a signature at the end of a carefully worded audit report.   McGregors have provided a very positive, real and pro-active answer that will seek to add real help and support to SME businesses in order for them to survive and prosper.

Steven Mugglestone BA FCA,
Finance Director Services
McGregors Corporate, Entrepreneurial Chartered Accountants and Business Advisers
…….Developing business people

T: 0845 519 5659                T: 0121 236 3317      T: 0115 9415193

steven@mcgregorsbirmingham.co.uk
steven@mcgregorsleicester.co.uk

Connect, call, talk, email, contact us, send a messenger pigeon and arrange a discussion, review and free meeting.

Written by Steven Mugglestone

October 9, 2012 at 9:01 am

#Rip Off Britain, a Solution for SMEs:

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#Rip Off Britain, a Solution for SMEs

Or Accountants get away with £500+/hour charges; The Emperor’s New Clothes and why Aldi are right!

Brand Status

Nike, Adidas, Boss, Harrods, David Beckham.  They are all recognised brand names, across the globe and all we know that we pay a significant premium for that brand.  It does not, however, stop us from going out and paying the extra, for being seen owning these brand names, vanity, kudos, style, all combine to make us believe that these are quality must have items.  We do this when we also recognise that the trainers we buy probably all come from the same factory in China or wherever or that perfume or aftershave is just water, alcohol with something that makes it smell nice.  The brand is the value, when the content is usually pretty much undistinguishable.

Most people recognise this, but it does not stop them paying over the odds for the name.

Things are changing and certainly have changed in both food and many clothes ranges in shops, own brands are becoming more and more popular and most people recognise that many own brand labels of foods are actually made by the well-known brand manufacturers from the same factories and production lines.  I have certainly personally walked around two well-known snack food factories to see both main labels and supermarket own labels being made and boxed.

The Emperor’s New Clothes

I would expect everyone knows the Hans Christian Andersen story about the Emperor’s New Clothes, but as a reminder you can always read the outline at Wikipedia:

http://en.wikipedia.org/wiki/The_Emperor%27s_New_Clothes

To a business, there is a serious message here, for all of us.  Sometimes there is nothing special, nothing new, nothing powerful or exclusive, nothing that can really add value, but we are expected to believe that there is and we act accordingly, recognising but never saying, “but, the king is in the altogether!”

Aldi are helping us see what the emperor is not wearing

I do uphold and applaud the current advertising campaign for Aldi.  Two products, side by side, the main label and their own label, with the same message from the person in the advert.  They like both products the same, but the message on the screen shows us that the Aldi own label product is a fraction of the price.

Professional Support is about people and experience and not a brand

What lessons can we learn about accountants/professional advisers and what should SMEs be wary of.

Well, brand values are prevalent in the accountancy profession and the same can be said of accountants and any professional advisers.  Well, I believe that sometimes, it can.  The brand will out.  But, we fail to recognise that service businesses provide people as their product and it is really those people that make the real difference, rather than the name of business itself.  In fact, the accountancy world is changing significantly both locally and nationally, with many established older independent firms being sold to brand names, but with many brand names failing in business and failing to develop their own businesses.  Conversely, there are other independent firms, like ourselves, being developed from senior and experienced professionals from within the larger brand names.

The reason our business and similar ones are being developed is that we want to work with SME clients and help them achieve.  It is what we do and what we enjoy.  Any SME business from start-up to larger established businesses want to work with a trusted adviser, someone they can rely on and call upon for help, direction and advice.  These are people and relationship issues and have nothing to do with a big corporate brand.  We want to build a long lasting business relationship with our clients.  At the same time, our clients can rely on the fact that our partners have been through far more business and finance experience than many others.

But we need a “name” because ….

Sometimes businesses say this as they believe that they have to have a “name” and accept the cost consequences for this.  With the Emperor’s New Clothes in mind, let us have a look as some of the facts:

I am not seeking to single out any particular firm, as the same “issues and things” can be found for most, if not all of the top 10 firms or top 20 or so franchises.  The key point to raise is that the “names” are not whiter than white and sometimes do not offer a better level of service, they are prone to mistakes, errors and fraud and sometimes, these are major problems, yet we perceive that these firms are cleverer, offer better service, better value and we are willing to pay the cost.  Many SME businesses using “names” can expect to pay up to £500 and sometimes more an hour for some directors, let alone partner/owner levels, at local offices for many areas of work, yet it is unclear why a business should accept that and what extra value they are getting for this premium.

How can we establish ourselves and take on the brands

We are building a brand, as you would expect, but by a quirk of fate rather than any pretentious reasons, we have corporate in our name, although we aim to be entrepreneurial in our approach.  Being entrepreneurial and independent, however, does not mean that we do not have the same level of corporate skills, systems and experience and, sometimes, more than many of the largest of firms.

Our partners have many years-experience working both within the largest accountancy practices and as finance directors within a variety of business up to listed public companies.  We have combined these skills and approaches to really ensure that we can be a valuable and trusted adviser to our SME client base.

Our approach is always to ensure that our client’s goals are achieved but we will always ensure that this is done by first addressing their personal and family position, after that we apply our commercial acumen and experience to really help a business achieve, working with them to set the agenda for what it is they want from a business and a business life.

This is not done by delivering pages of pre-prepared generic notes but is always personal to the client and is achieved with the support and expertise from business professionals with real wide-ranging experience and expertise.  We also always aim to do this with a smile as we look to build a great long lasting relationship with our clients.  We believe that providing the same level of services expected from large national firms, delivered locally by the same quality and experienced partners is key to what will prove to be our current and future success.

These are some of the ways that we do this:

  • Our Audit Service provides quality controlled audit work using up to date systems and managed by experienced auditors, who have been involved in large complex audits covering most business sectors.  We use this insight into a business to provide a commercial view of the strengths, weakness qualities and improvements required for a business and its systems.
  • Our Statutory Accounts and Tax Compliance Service is carried out by experienced local professional staff with many years-experience working with SME businesses.
  • Our Management Information Service works with businesses to create appropriate and tailor made reporting to help manage a business and its growth.
  • Our Finance Director Service is controlled and delivered by partners who have been FDs, raising finance; growing businesses; starting businesses and turning businesses around.  This ensures that your business can be lead in the same way as many large established business, but at a cost that suits SME businesses.
  • Whether looking for finance to start, grow, acquire or eventually to retire or sell, our Corporate Finance Service ensures specialism, knowledge and trust in a business is combined.
  • When looking to acquire a business or sell or re-structure a business our Transaction Support Service will really help.  Managed by partners with real FD experience, unlike many other firms.
  • Our Specialist Personal and Corporate Tax  Service provides innovative structures and solutions, together with Probiz Tax, to really mitigate and reduce tax costs.
  • Our Business Growth Service joins with our associated partners to help improve sales, whilst managing and reducing costs as well as controlling risks.
  • Our Wealth Management Service protects an SME, their owners and their family and builds and protects their future wealth.

Advert over, but the key point is that many, newer independent accountancy firms, as well as ourselves, are being developed in the market today and these are being developed by partners and directors formerly from within the larger businesses, offering the same service from the same experienced senior team, but at a fraction of the cost.

The times they are a changing

The last 3-4 years has seen significant changes to the world of accountants, as well as lawyers, and this looks like it will continue.

Many of the large firms growth has slowed, stopped and gone backwards.  National practices have gone bust, which cannot be a great advert to support your credentials as a business adviser, yet these firms have morphed into other competitors, who equally face problems.  Some of the largest firms have completed takeovers and/or mergers which, again, have proven to be a disaster, with the businesses being acquired appearing to be works of fiction and the subsequent redundancy programs of 10% of their staffing as a direct result of bad business decisions and policies which amount to keep growing and acquiring come what may.

The loss of traditional independents

Many of the older and established firms have been lost or have been acquired by the national firms and franchises and this is largely because the existing partners could not develop a younger partnership to take on the future of their businesses and have had no choice but seek to sell to others.

As well as other companies that we know, we believe that we are amongst a new breed of commercial and entrepreneurial firms of Chartered Accountants.  We also believe that we have the experience and provide the same level of service as the largest firms supporting SMEs, but we are keeping our costs low and we are looking to pass this on to our SME clients.  Many of the larger firms serving the SME market have to service high local salaries, significant local office costs, higher national salaries and national office costs and on top of that provide returns to their shareholders.  The pressure is on for local offices to earn more and more from their existing SME clients as well as seeking more clients with high recurring fee levels.

We stick by the Aldi business model

Aldi are striving to show consumers that they are offering the same quality of product but at a fraction of the cost and they continue to shout this out, loud and clear.  To do this they also have to ensure that their own costs are controlled and the advisers and auditors that they have used are midlands based independents, so it is good enough for them.

We also work with colleagues at Expense Reduction Analysts, http://www.expense-reduction.co.uk/, to help our clients and contacts to source alternative supply chains in order to lower their costs for many direct supplies as well as overheads.  They cannot recommend a professional adviser, but would suggest that a business looks at the charges for their audit, accountancy and tax compliance costs regularly as well and seek other firms to provide professional service proposals.

Two key reasons for my own return from Finance Director back to accountancy practice are that I really enjoy working with SME business and the other is about sharing with clients the things that I know now that I did not know when previously in the profession and these are both commercial skills as well as understanding the story of the emperor’s new clothes and trying to ensure that SME businesses do not fall for it.

We, like Aldi, aim to keep saying this, loud and clear, same service, same people providing the service just at a fraction of the cost.

Steven Mugglestone BA FCA,
Finance Director Services
McGregors Corporate, Entrepreneurial Chartered Accountants and Business Advisers
…….Really good for your business

McGregors Corporate are a Member of Probiz Tax, providing Innovative Tax Solutions to Owner Managed Businesses.

http://uk.linkedin.com/in/stevenmugglestonefca/
http://twitter.com/McGsCorporate
http://www.mcgregorscorporate.co.uk/

T: 0845 519 5659                T: 0121 236 3317
steven@mcgregorsbirmingham.co.uk

Connect, call, talk, email, contact us, send a messenger pigeon and arrange a discussion, review and free meeting.

Written by Steven Mugglestone

January 23, 2012 at 8:29 pm

McGregors Corporate 2011 blogs in review

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The WordPress.com stats helper monkeys prepared a 2011 annual report for this blog.

Here’s an excerpt:

A San Francisco cable car holds 60 people. This blog was viewed about 2,900 times in 2011. If it were a cable car, it would take about 48 trips to carry that many people.

Click here to see the complete report.

Written by Steven Mugglestone

January 4, 2012 at 9:17 am

Location, Location, Location, Cost, Cost, Cost, Service, Service, Service

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Location, Location, Location, Cost, Cost, Cost, Service, Service, Service

As any business should, we are constantly reviewing what is important to our current and future customers (yes, we are a business and yes, we have customers; we sell services and products; and yes they are also our clients as we have a professional responsibility to do what is best for them and to represent them to the professional standards that we have been trained to meet).  Customers and clients are not mutually exclusive, you ensure the best possible service to your customers and you will do the same for your clients.  Many accountants shy away from this, constantly referring to their clients, trying to disguise the simple fact that we are also in a business, our clients are also our customers.

From our research and understanding we have simplified the key issues facing our customers, when they look to choose an accountant and adviser down to three, location, cost and service.

Location, location, location

Some businesses only sell to their local market.  Most businesses look to sell to their local market and beyond.  Many businesses look to sell throughout this country and beyond, and in respect of Virgin Galactic well, it starts to go further than that.

Whilst most businesses look for customers across a wider geographical spread and are happy to travel themselves, they will look to choose an accountant within a mile or so of their offices.  Why, when the accountant and their staff can travel and we live in a world where communication is almost instant.  I remember a time, not so long ago, when documents and plans being drafted were sent by post and returned with manual mark-up changes.  This is now instant, technology has moved on.  We are moving to the provision of monthly online accounting for clients as well as keeping up with the online filing with HMRC and Companies House.

A business does not have to walk around to their accountants office to discuss a problem, depending on an accountant’s approach to email, you are likely to get better value from your accountant by emailing your query and getting a written response, rather than exchanging niceties face to face or over the phone which, unless you have a fixed fee arrangement, you would be paying for under the traditional/old fashioned hourly charging basis of many practices.

An accountant who is available via email can give a more considered answer to your question and provide links to useful resources. There are also very few queries which need an instant response.

You may also consider whether your accountant needs to be local at all. Do you really need to have a regular face to face meeting? Do you value having a local accountant over the distant, competent/specialist, cost effective accountant? Perhaps there is a middle ground, literally as we generally help clients within the Midlands region of the larger West Midlands/Birmingham area, Nottinghamshire, Leicestershire and Lincolnshire.  All of this is achieved within an hour’s drive from one of our offices.

In over 20 years in practice, I find that a client/customer face to face meeting is becoming less and less necessary, although we very much have appropriate meetings with clients directly as part of our key planning process to ensure that we are still providing our client with the most appropriate advice and service. Correspondence is generally via email and telephone. Queries/advice are usually emailed and read/answered at each other’s convenience which is more efficient than leaving messages for each other to call back and also the questions/answers are more focussed.  Meetings are still held to discuss key issues and for periodic updates, but these should be focussed to achieve an appropriate outcome for both parties.

Some accountants will “sell” location, but just because they have an office on your doorstep does not mean that they will provide you with the most appropriate service and advice and at the most appropriate cost to you.

Some accountants and auditors actually seek to perpetuate the myth that location is vital by seeking to send their staff to a client’s premises to spend longer than is actually necessary.  For those out of the audit profession, most audits can be split into equal thirds of time; a third planning, whereby information is gathered and key issues are identified; a third fieldwork, whereby the audit testing is carried out; and a third completion, when reports of key issues and treatment and checklists are completed.  Only the fieldwork requires staff to actually be at a client’s premises, and then not for all of that time either.  Some accountants actually encourage their staff to spend longer at the client’s (customers’) premises than is necessary to make it look as if significant time is being spent, when mostly the client’s staff could do without the auditors being there for longer than is necessary.  We are honest enough to explain that to our client’s the process and will only spend the appropriate time at the client’s premises.  If the managing director wants us to be there longer as they see the visibility of the auditors as important then we will, but this will done as part of an honest discussion around what is actually required.

Cost, Cost, Cost

Interesting one, and a key issue that many accountants really do shy away from, when many other businesses have to transparent and open.

The key issue is that many accountants continue to use an outdated (Victorian) business model for their own business.  They charge by the hour (usually by 6 minute units) and continue to do so for whatever they do, and some firms 6 minute rates can be quite high (let alone an hour).

There is a different model and certainly one that we adhere to.  General compliance work (i.e. the stuff that has to be done for legal/tax reasons, the accounts, audit and tax returns) is a commodity product and can be set at a fixed price and this price does not need to use high charge out rates with partners charging even higher rates for their minimal input.  The majority of this work is process driven and costs can be kept low.  Many SME businesses pay far too much for this work.

A separate area of service is where you can actually make a different to a business; save them tax; reduce their costs; increase their profits; grow their business or find them finance.  Again, is an hourly rate appropriate?  We do not think so and will always look for the fee/cost to the customer to reflect the VALUE of the work done and SAVINGS or IMPROVEMENTS that we have achieved.  Surely this is WIN/WIN in the game theory rules of business.  A dark art, I do not think so, but honest and open business.

Service, Service, Service

“You pays your money and you takes your choice,” well, sometimes.  Service covers a multitude of areas, including, but not exclusively being polite and acting quickly for your customers.  Most clients/customers use the term Pro-active, when asked what it is they are looking for from a client.  To be pro-active, you have to offer a wide range of services to a client and understand where the client is going, where they are now and what are their aspirations and goals.  You also have to care; none of this is about completing accounts that are six months or more out of date.

We believe that to provide great service for all SME businesses there are number of key factors:

  • A partner lead service from an experienced, approachable and positive business professional
    (many accountants can either sit in ivory towers or just do not have the drive or experience)
  • The ability to grow and drive a business with the skills of a commercial Finance Director,
    (most accountants have never worked within a business or part of a business at all, yet claim to be business advisers and specialists)
  • The provision of strategic marketing and sales opportunities to grow a business organically
    (most accountants do not understand marketing and shy away from this crucial support)
  • The control and reporting skills for a business with the skills of experienced auditors
    (most small and mid-tier accountants, have never been part of large complex auditing or accounts assignments, and larger firms can cost…..a lot!)
  • Obtain finance to ensure your business continues to grow
    (corporate finance is still a crucial part of a business success and requires experienced and “well-connected” professionals to deliver appropriate funding)
  • Provision of innovative tax saving structures with the support of imaginative tax specialists
    (large firms sell their own “products” under the heading of advice, small firms tend to hide under a rock, but tax planning is still very crucial and strategies and planning opportunities change as often as tax laws do….. tax laws change as the tax planning proves to be effective and legal.  Some people claim that these are loopholes, when actually it is the law)
  • Control and reduce your costs with utility, insurance and other key supplies associates
    (in today’s climate cost control is vital, and this includes your audit, accounts and tax compliance costs as well, but find an accountant who can source other cost reduction reviews, as part of my first FD position, we reviewed, re-modelled and re-tendered out all main costs, having fully understood what usage we faced .… and this included the audit)
  • Innovative structures to protect and grow your wealth
    (never have an IFA/wealth management specialist provide support without being part of an accountant team, they need to work together)
  • To maximise your wealth and value of your business when the right times comes for you to sell or retire or pass on your business to your family
    (experience, experience, experience and the skills of an FD to really groom your business for sale)
  • Pass the barbecue test.  I spent some time with a UK wide group of FDs and after all the experience and qualifications part of the recruitment process, the final part of the recruitment procedure was whether you were a person who you actually wanted to spend time with, have a drink with at a bar or barbecue, someone interesting and with personality.
    (ACCOUNTANTS/AUDITORS …… enough said!)
  • All of this should be provided with a smile on their face and with real positive attitude and energy.  Their aim is to improve your business and personal situation and their attitude and drive to do this should shine through.

Get yourself the right accountant today and you will not be repeating this process for years at a time, but also do not be afraid to get a check-up and re-tender a service proposal to find out what else is out there.  Accountancy firms change; some get better; some get lazy; some get more expensive and some never had it in the first place.  Better yet, you will save yourself tons of time and money in the long run, and you will have a new trusted partner to bounce ideas off of down the road.

A Final Joke

A newly qualified chartered accountant applies for a job advertised in the Times.  He is interviewed by the owner of a small business who has built it up from scratch.

“I need a qualified accountant,” says the man, “but mainly I’m looking for someone to do my worrying for me.”  “How do you mean?” says the accountant.  “I have lots of things to worry about, but I want someone else to worry about money matters.”

“OK,” says the accountant. “How much are you offering?” “You can start on sixty thousand,” says the owner. “Sixty thousand pounds?” exclaims the accountant, “How can a business like this afford
to pay so much?”

“That,” says the man “is your first worry.”

Steven Mugglestone BA FCA,
West Midlands Area Director and Finance Director Services

McGregors Corporate, Entrepreneurial Chartered Accountants and Business Advisers
…….Really good for your business
McGregors Corporate are a Member of Probiz Tax, providing Innovative Tax Solutions to Owner Managed Businesses.

http://uk.linkedin.com/in/stevenmugglestonefca/
http://twitter.com/McGsCorporate
http://www.youtube.com/watch?v=nhC0wlglePE
http://www.mcgregorscorporate.co.uk/contact-us.html
http://www.mcgregorscorporate.co.uk/

T: 0845 519 5659
T: 0121 236 3317

steven@mcgregorsbirmingham.co.uk

Connect, call, talk, email, contact us, send a messenger pigeon and arrange a discussion, review and free meeting.

Is an audit a boring waste of money or can it really add real value to a business?

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Is an audit a boring waste of money or can it really add real value to a business?

Rhetorical question, I know, but having been on various sides of the table for differing sizes of business, I think it is a relevant discussion point.

From observation and discussion and having returned back into the professional accountancy world, it seems that many SMEs can sometimes see an audit as either a necessary evil or just an “insurance policy” to have a name on their accounts in case somebody needs to refer to them for credit or banking facilities (or to sue).

It also appears that many accountants to SMEs treat it pretty much the same. Carry out an audit (all very nicely done and within the relevant standards and guidelines), but in the end they have a brief meeting with the client, arrange the formalities of various letters to sign and then that’s it done for another year.

Having worked as an adviser in a large corporate environment and as a Finance Director for a number of years, I do not believe that it has to be this way. An audit and in particular the resulting memorandum produced, can add real value to a business and provide real support.

The Key Issues Memorandum

A large formal audit environment and large audit firm may look to produce a Key Issues Memorandum document as either a by-product of the audit or to report specifically to the audit company of a large corporate client. This is likely to address the following:

  • To summarise and report on the key points from the resulting profit and loss, balance sheet and cash flow of the business
  • To address, report and conclude on any material issue that is significant In the year
  • To re-iterate the responsibilities of the director and auditors
  • To report that the company complies with the relevant legal framework to be able to sign an unqualified audit report
  • To report on changes on any other relevant and specific environmental or legal framework affecting the business
  • Maybe to explain the tax charge for the year
  • To report on any specific areas that the directors have asked the auditors to review
  • Maybe to report on controls, but more likely to report control problems
  • If really exciting to report on incidents of fraud perhaps
  • To report a list of minor or non-material errors found during the course of the audit

The thing is, these reports are very good, but for an SME business and business owner they could be better and even more useful.

The Commercial Finance Directors Key Issue Memorandum

Taking a Finance Directors view, we can take the concept of the key issues memorandum and make it far more commercial and of real use to businesses to be able to drive their business. Consider what a Finance Director would include:

Results for the period

Financial information is a measure, but are we measuring it against. If we sit down with a business first, the basic is what is the plan? Where are you now and where do you want to get to? To get to that position there will be stepping stones along the way. We need to consider the stepping stones and use them to guide and judge the business.

There is basic information that we can use. It does not have to a grand strategic plan; it can be done on one page. Whether it is sales, gross margins, percentages, number of widgets sold, cash generated, unit selling cost or production cost, telephone calls per hour, number of customers coming into a shop, sales per head etc., etc. these Key Performance Indications, KPIs, are vital markers to how a business is performing.

But what do we judge them against. Again, keeping things simple.

  • Prepare a 3-5 plan and highlight the KPIs in that plan, use them to judge on-going performance (amend them as you go, amend the plan as well, but do not throw it away, it is the framework of your business)
  • Prepare a detailed annual budget, use it to monitor and control the business throughout the year
  • Report the key changes from the budget and (more importantly), what is being doing to correct and amend these areas
  • Benchmark the results. All FDs will use benchmarking data to judge, review and amend their businesses performance. If your competitors are performing better than you, then you need to understand why and take appropriate actions.
  • We use benchmarking data from information from a UK wide database of financial information from accountants (not simply Companies House). We also use an easy “traffic light” method of benchmarking the performance against top, middle and bottom quartiles of similar UK wide business. If you are in the red, then we need to address that area, as 75% of your competitors already have done and are performing better than you. Moving up one quartile can have a significant effect on the performance.
  • KPIs are not only used to control and improve the profitability of a business; they should also be used to improve cash. Stock holding, debtor and creditor days and other working capital areas all impact on cash, and as any FD knows, when times get tough cash is king and when times get better, cash is still king.

Internal Controls

An auditor will look and report on an internal control in respect of potential fraud, areas where lack of controls may allow the opportunity to steal from the company. However, large audit companies are not whiter than white themselves in this area.

KPMG accountancy chief fiddled £545,000 to pay for his new wife’s £15,000-a-month luxury tastes
http://www.dailymail.co.uk/news/article-1208975/KPMG-director-stole-500-000-expense-claim-scam-fund-wifes-lavish-lifestyle.html

A Finance Director for an SME business may look at this differently and look at the area as controlled delegation, rather than internal control.

Controlled delegation is a more commercial approach and seeks to look at an area to free up the time of the entrepreneur/business owner from some of the area that they do not have to get involved with and allow and encourage them to spend more time on the areas that will enhance and grow the business. The controls need to be practical and allow the entrepreneur to work on the business, secure in the knowledge that those areas are appropriately controlled and reportable.

A practical example of how the information contained on an audit file and available for use by an auditor is as follows:

An entrepreneur was the main sales person for his business. He worked hard and was successful in growing sales, but in his opinion he was stuck, the business could not yet pay for another full time sales person, but the owner did not believe that he could increase the sales further in his own. On review of the monthly sales profile it could be seen that there was a consistent two months of good sales and one month of poor sales. On questioning the business owner it was ascertained that the product catalogue was quarterly and one month a quarter the owner would update the catalogue and not book so many appointments. A simple solution was that his assistant was trained to update the catalogue and report it back to the owner, allowing him to sell more. Needless to say sales increased and a future sales person was eventually paid for.

Internal controls are still very important. The report, however, should be able to come up with the practical controls that will allow the business to grow, but will also be able to highlight and recommend areas for improvement where the potential for fraud is high.

Risk register

Permanent Finance Directors, Contract and Project Finance Directors and Project Managers generally will all consider a formal risk register. Consider what can go wrong, rank them in the probabilities that they happen, rank them in respect of the financial impact to the business.

If it possible to go wrong and it has a significant financial impact, then what is in place to control and mitigate this, procedures, manuals, disaster recovery plans and insurance policies should all be considered.

A risk register that considers these areas, lists and puts in the controls for these areas is not only valuable, it is practically priceless. Generally audit procedures cover these contingent areas and can assist in the development of a practical risk register. Some of the areas, such as HR/IT control will have a practical solution and the controls can be outsourced, but the key is the risk register.

Tax area

This is practically a no-brainer. Yes the report should report on how the tax charge arises, but we can go further than that.

An audit gives insight to a business and practical tax planning can be applied to this knowledge. For example:

  • Tax advantageous pension contributions to key employees/directors
  • New product areas, new geographical areas and new markets may benefit from specific tax planning that can significantly mitigate the tax in this area for more than 5 years
  • Company cars and benefits can also be managed within a similar arrangement as those dealing with new growing areas
  • There are other tax strategies available, which will fit within the profile of the client and business, but the client needs to be aware of these
  • Build-up of cash in a business may look good, but for tax this needs to be appropriately addressed. A business should have a strategy for cash extraction. Dividend v bonus is a simpler one, but there are more.
  • Future tax changes need to be considered and appropriate strategies put in place. Again the audit and this document is a key tool to consider these areas and start an appropriate plan

The considerations can go further, but this is meant to be a short(ish) blog and capture some of the key points. An audit, a boring waste of money, with no practical use to the business, I do not believe so. SMEs should use an audit company that can call upon these valuable practical solutions and help while ensuring that the audit still results in the appropriate sign off of an audit report.

Without stating the obvious, I think we are one of this audit companies.
Steven Mugglestone BA FCA
West Midlands Area Director
McGregors Corporate

http://uk.linkedin.com/in/stevenmugglestonefca/
http://twitter.com/McGsCorporate
http://www.youtube.com/watch?v=nhC0wlglePE
http://www.mcgregorscorporate.co.uk/contact-us.html
http://www.mcgregorscorporate.co.uk/

T: 0845 519 5659
T: 0121 236 3317

steven@mcgregorsbirmingham.co.uk

Connect, call, talk, email, contact us, send a messenger pigeon and arrange a discussion, review and free meeting.

Written by Steven Mugglestone

November 11, 2010 at 3:26 pm

How an FD drives a business when sometimes Accountants are just catching up

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How an FD drives a business when sometimes Accountants are just catching up?

Recent debates and criticism from Finance Directors say that Accountants generally do not have the commercial skills required to truly help, support and drive a business.  What does that mean; when a significant number of FDs go on to be chief executives, could you see your Accountant doing the same.  What are the skills and experience that an FD possesses, that an Accountant does not and how can those skills and experience help all businesses.

Most FDs work within a structure of their role covering how a business operates and where it is going and this can be looked at within three distinct areas, support, operational and strategic.

Support Areas

This covers some of the traditional areas that you would expect an Accountant to be responsible for, but an FD may have a differing approach to improve and support the business.

Compliance reporting is one of those areas and whilst this ensures that a company is up to date and complies with its statutory requirements to file its accounts and tax returns, an FD will also ensure that the messages within those financial statements are firmly within the company’s strategic vision and missions and that those financial statements reinforce publicly where the business is heading.

An FD will also be responsible for tax planning and overall dealings with HMRC, on an annual basis.  Whist an FD may not be a tax expert, they will ensure that tax costs are mitigated and planned for and sensible structures are in place to ensure that all relevant reliefs and tax breaks are made available to help the business, and individuals involved in the business to manage its tax costs.  As part of this, an FD will assess the risks involved to ensure that overall risks are managed in line with the strategic plan of the business.

As part of a support role, an FD usually gets responsibility for the areas that the other directors do not wish to touch.  These are usually HR, IT and insurance (part of risk control and mitigation).  Whilst larger organisations may well have separate staff and departments (usually reporting back to the FD), in a smaller organisation and business an FD is likely to outsource these and other similar areas.  Outsourcing allows an FD to ensure that the relevant risks involved in these areas are controlled and mitigated and that costs are also controlled.  However, despite being an Accountant by training, costs are not the only reason why outsourcing is considered as the risk profile and support afforded by the outsourced provided may well be more beneficial than trying to carry this out in house.

Again an area that other directors or the owner of the business may have little interest or desire to be responsible, albeit an area key to the success of a business is dealing with legal documents and agreements.  Whilst an FD is not a lawyer, they do understand what reasonable terms and conditions would include and what clauses should be in an agreement and what should be avoided or mitigated.  An FD will liaise closely with the businesses legal advisers (outsourced) to ensure that commercial matters are reviewed and considered in all of the legal agreements that the business adopts.


Operational Areas

Again this would appear to be a traditional area that an Accountant would operate within to help support a business, but an FD will have a different emphasis to ensure that the operational areas truly help to improve a business.

An Auditor and Accountant will carry out tests and comment on procedures and reporting known as internal control.  An FD sees this area as controlled delegation, the difference being that the appropriate structures and controls are put in place to allow senior members of the business to concentrate and be allowed to carry out roles that they are good at and that are crucial to the improvement of the business.  As an example, if the key director is also a key sales person, they should not be spending their time writing brochures, catalogues or processing orders, but they need to be comfortable that those areas can be carried out to the appropriate standard without them.

A real traditional area is reporting, but an FD will always ensure that the reporting format and what is reported is not about dwelling on the past but ensuring that appropriate areas are planned for and controlled.  The term key performance indicators tend to be over used but an FD will always look to simplify the reporting to concentrate on key areas that really matter and these may not always be financial.  An FD will use budgeting as a control tool for reporting, but will also use benchmarking against best performance within the business and external to the business.  This is not done to dwell on the facts that the business is performing better or worse than others in a particular area, but to understand the reasons and address accordingly.  Sometimes you find that your competitors carry out some things better than you and if you can address these areas you can make a difference to the bottom line.

The use of benchmarking, budgeting and using key performance indicators by an FD will lead to identifying profit improvement, ensuring that operational reporting is used to enhance the earnings of a business.  An FD will usually be responsible for negotiating and agreeing many of the businesses supply and service contracts.  This will mean that they will look to consider all relevant factors, model usage accordingly and ensure that competitive tenders can provide what the business needs.

Profit is one thing, but cash is king.  Businesses do not go bust because of profits, but because they run out of cash.  An FD will always be responsible for working capital and cash management.  The maths in this area is relatively simple in that with high stocks, work in progress and debtors with low creditors comes a strain on cash.  An FD will control this area on a rolling weekly basis and on some occasions and with some businesses this will be done on a daily basis, to free up cash for use in the business.

Strategic Areas

This is an area that perhaps a traditional Accountant does not readily engage with or is involved in.  An FD will have knowledge and experience of an overall strategic plan which covers customer and marketing strategies, systems and processes and people development, but whilst overlapping, an FD will concentrate on the financial areas that underpin a strategic plan.

But what is strategic activity and how can it be defined.  An FD will lead defining strategic investment and activity.  This will mean assessing where a business is going to channel its resources to improve;  an FD will ensure that investments in both capital and human resource, marketing or other activities together with other related improvements and new areas that they are undertaking have a reason and a goal and that these are appropriately considered taking account of strengths and opportunities.  The costs and impact on the business can be measured and the future impact forecasted.  An FD is ideally placed and qualified to ensure that strategic activities are appropriately considered, planned, assessed and monitored and along the way they can add to the creative and entrepreneurial flair gained from the experience in this area.

An FD would not be an FD without considering risk.  All project management and strategic plans will contain a risk register.  Full consideration of both financial and commercial risks involved in all activities are considered and recorded and appropriate mitigation and insurance will be put in place.

All businesses should consider a time plan and an FD will ensure that an appropriate implementation timetable is considered and worked to.  This may be in respect of a specific area or the overall plan for the business leading to eventual exit by sale, or perhaps listing on a recognised market.

Underpinning a strategic plan is an appropriate funding structure.  The businesses own cash generation may not be appropriate to fund longer term investments and in return some higher risk areas may not attract bank or similar funding.  An FD will ensure that funding is appropriate for both the timescale and risks related to the business’ activities and strategic plan.  An obvious key area underpinning funding for a business is the relationship with current and potential future funders.  An FD is key to this relationship, whether banking, private equity or institutional as they understand what information is required and help to ensure that funders are comfortable with the current position of the business and its future aims, goals and requirements.

In summary an FD is not just an Accountant and some of the areas above highlight what FDs mean when they say that Accountants do not have the commercial skills and experience required to add real value to a business.  Some of their roles, including controlling delegation and support areas ensure that other members of the senior management team or the business owner are allowed to concentrate on other areas to enhance the business.  Other roles and functions such as reporting, profit improvement and cash management ensure that that the business can continue to improve cash generation which leads to cash being made available to support the strategic goals of the business.

Given all of this that an FD can offer a business, the only remaining question is why would you just use an Accountant when you can have an FD.

To find out how we can help all SME businesses with this real pro-active support, experience and background or to help you source a part time FD for your business, feel free to contact me at steven@mcgregorsbirmingham.co.uk or call me on 0121 236 3317.

Steven Mugglestone BA FCA,
McGregors Corporate, Entrepreneurial Chartered Accountants and Business Advisers
…….Really good for your business

McGregors Corporate are a Member of Probiz Tax, providing Innovative Tax Solutions to Owner Managed Businesses.

http://uk.linkedin.com/in/stevenmugglestonefca/
http://twitter.com/McGsCorporate
http://www.youtube.com/watch?v=nhC0wlglePE
http://www.mcgregorscorporate.co.uk/contact-us.html
http://www.mcgregorscorporate.co.uk/

T: 0845 519 5659
T: 0121 236 3317

steven@mcgregorsbirmingham.co.uk

Connect, call, talk, email, contact us, send a messenger pigeon and arrange a discussion, review and free meeting.