Steven Mugglestone

The more I learn, the less I know

Posts Tagged ‘Finance

Are you ready for the key challenges for 2013, Tell Us Your Story and let us help:

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As a leading Independent firm of Chartered Accountants, we have former Finance Directors working within the accountancy profession, as part of our leading business team.  We believe that professionals with real commercial experience together with being part of the ownership of the business really does provide our clients with key, relevant advice and support and we see as experience and empathy being the two most important attributes to be a really great business adviser.

MGC Hayles is developing a leading business advisory firm within the Midlands. We understand that, aligned with survival, the two biggest challenges facing all businesses in 2013 is growth, with many businesses seeking growth through export together with the availability of finance.

We believe that we are already addressing these key challenges through our contacts within many of the key banking and finance providers, whilst accepting that finance through banks is still very tough, as well as through our private equity contacts and membership of the Growth Investment Network in the East Midlands.  We are keen to develop our support for international trading through the UK200 Group,  which combined with our skills and experience as real finance directors will provide us and our clients with the real and valuable support where it will count.  A key strap line for us is “It all adds up” and we believe that these are the attributes and key areas that will prove that to be true.

Growth through export and new markets

During 2012 the UK economy has already seen key opportunities for expanding business by moving into new markets, namely the BRICs – Brazil, Russia, India and China.  Here are the key reasons

  • Brazil is an economy even bigger than India’s with a substantial middle-class population.  This provides substantial opportunities across many sectors, British business cannot ignore Brazil. The Brazil Effect
  • India has huge demand for Western products and services and these are prevalent among India’s young middle class.  Together with cricket, it is creating a great opportunity for UK business. But the Indian market is very relationship-driven and success can depend on building relationships and partnerships with other businesses.  Leicester is a key route through to business in India, http://www.labauk.org/, and we certainly aim to play our part in supporting this integral part of our local economy.  India cannot be ignored
  • Russia & Eastern Europe has grown and significantly developed since the break-up of the Soviet regime 20 years ago.  Russia’s economy has steadily evolved and yet it accounts for only one per cent of UK imports and one per cent of UK exports.  There is, therefore, plenty of room for growth. Russia is the fastest growing export market
  • China and Anglo-Chinese relations are at a high and the City of London will be first city outside Hong Kong and mainland China to trade the RMB. This will provide event more opportunities for UK business in China, but UK businesses will need to develop the best strategies to exploit this complex and diverse region. China is the great economic success story

Raising Finance to grow your business

Obtaining finance through traditional lending sources, such as the banks, remains one of the biggest challenges for dynamic companies seeking to fund future growth. We recognise that we have to be diverse and imaginative to source finance.  On a plus side, there are growing signs that asset finance and some government initiatives are starting to develop, but the road ahead remains tough.  Here are three of the key areas to address for any business looking to source finance to grow:

  • Planning ahead is crucial as you need to anticipate your requirement and kick off discussions with prospective funders very early on. It is also worth noting that it is a fight for capital and you need to be at the front of the queue. http://www.ginem.co.uk/
  • Have a plan A, B, C, D ….. and bring in competition for funding and be open-minded to new institutions, new forms of finance, new structures that can meet your needs in an environment that is fundamentally different from pre-credit crunch days.   Business angels now also provide loan finance and this is any area that many businesses could consider.
  • We have said it on many occasions, but deliver a robust plan and demonstrate that you can think through the challenges in your business as well as the upsides.  In today’s world you have to consider things from a banker’s/funder’s perspective as well as from a shareholder’s.  You need to consider a warts and all plan and avoid any due diligence holes in the opportunity by anticipating pitfalls.

We, of course, can help in all of these areas.  We do this through experience and as business owners and we would welcome an opportunity to listen and for you to Tell Us Your Story.

Steven Mugglestone BA FCA
FD Services
Tell us your story

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enquiries@mgch.co.uk

www.mgchayles.co.uk

Leicester               0116 233 8500
Nottingham           0115 941 5193
Birmingham           0121 236 3317

Written by Steven Mugglestone

January 15, 2013 at 1:47 pm

Great Corporate Finance Advice Is Never Just About Finance:

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….. and lessons from the Titanic

Ask a number of business people or the public in general as to how they would describe a corporate finance professional adviser and it is likely that they will say male, young, sharp suit, fast talker and generally an all-round slippery character, more intent on “doing a deal” than providing significant support and advice.  It is fair to say that during the pre-credit crunch days, this negative image was fairly common.

Times have changed, with more commercially experienced and generally well-rounded business professionals becoming part of corporate finance businesses, utilising and blending the skills and experience of entrepreneurs and finance professionals who have many years of experience working within businesses as well as advising them.

It is worth looking at what makes a great corporate finance adviser, why would a business use them and what are the common misconceptions as to what they do.

Finance Broker

The first key area to understand is that whilst corporate finance advisers do source finance, they are not merely a finance broker.  They act for the business to provide the best platform possible for the business to either start, acquire or expand.  This cannot be done by any individual who believes that picking up the phone and introducing two parties to do business is called a finance service, it is not.  It is merely that, a broking service, introducing parties.  Great corporate finance advisers provide so much more.

The Right Adviser

Ask yourself, as a business person, do you know everything; everyone; what works and what does not work; where your business is in the market place; the future of your market place; what you do well and what you need to address.  If the answer is yes, then Lord Sugar/Sir Richard you will not need a corporate finance adviser.  For the not so successful but rationale business people trying to work their way through the real business world, you do need support and you will find out “every day is a school day” and choosing the right adviser with the right experience will prove to be the most important decision that you can make.

Corporate Finance Adviser, Your First Finance Director (or assistant if you already have one)

A great corporate finance adviser will be a great business’ first Finance Director, or will be the greatest support to those businesses with an FD.  Your business or new project, acquisition or expansion is a journey, and for success you will need to have the best team and the best plans.  Here is how great corporate finance support helps:

Helping Set your Strategy

The old stereotype of a corporate finance adviser was of the young man, keen to do a deal, but severely lacking business and life experience.  This is changing and many corporate finance advisers bring a wealth of business experience from a wealth of businesses that have both advised and worked in businesses through good and bad times.  It is worth asking the questions, before appointing any adviser, what have you really done and who have you worked with.  Professionals who have worked for the same organisation all of their lives are likely to bring you the same party line.  You should ensure that you find advisers with not only the badges of business, success and qualifications, but the scars of business as well, illustrating real business experience.

With all of this experience, you can draw upon that knowledge and experience to build your strategic plan, covering customer and marketing strategies, systems and processes and people development, but also ensuring that the financial areas that underpin strategic plan are relevant and robust.

A great corporate finance adviser with help lead defining your strategic investment activity.  This will mean assessing where a business is going to channel its resources to improve;  ensuring 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.  With a new FD, a great corporate finance adviser 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 their experience in this area.

Strategic plans need to consider risk and risk management.  All project management and strategic plans will contain a risk register and risk plan.  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.  This is not done for the sake of it, but is done to consider what can go wrong and put in places procedures and systems, as well as insurance policies, to mitigate them.

Any businesses should consider a time plan and a great corporate finance adviser will help ensure that an appropriate timetable is considered and worked to, including consideration of the most appropriate exit for you from your business.  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.

After all of this and underpinning a strategic plan is an appropriate funding structure.  The business’  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.  A great corporate finance adviser will help to 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.  Together with an FD, great corporate finance advisers are 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.

Helping to create the right operational support

Great Corporate Finance Advisers can really improve your business chances of not only securing funding but in many occasions can ensure their commercial success and improvement.

Many times individual or small teams of entrepreneurs arrive with an idea to start/build/acquire a business and these small teams have varied and complementary skills and strengths.  Many times, however, there is a skill set missing to launch the best team for the journey.  This may be a chairman/chairwoman, an FD, a sales and marketing director/adviser or chief executive.  A great corporate finance adviser will see this and will strongly advise what is needed and why.  Great corporate finance advisers will even lead the search and find that missing piece in the jigsaw.  If you thought that is what recruitment consultants did, it is worth noting that great recruitment consultants will find you what you want, but great corporate finance advisers will find you what you need.

It is also worth noting that as part of your team, you will need to ensure that all parties play to their strengths and so you will need help with controlled delegation, ensuring that the most 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.

Do not forget good reporting to help improve the business.  A great corporate finance adviser 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 a great corporate finance adviser, together with 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 a great corporate finance adviser and 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, but at the start a corporate finance adviser will get this going in the right direction.  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 and a great corporate finance adviser will help to cement that ethos with you and your business.  Businesses do not go bust because of profits, but because they run out of cash.  Corporate finance advice will always tackle 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.  Systems need to be considered and put in place from the onset to 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.

Ensuring that your business is well supported from the start

There are many business functions that have to be done and are thankless task but someone has to do them.  As part of any business plan of operations, a great corporate finance adviser will help to ensure that these are dealt with from the onset and will work with an FD, who usually ends up with these roles to put appropriate support in place. These will include HR, IT and insurance (part of risk control and mitigation).  Whilst larger organisations may well have separate staff and departments in a smaller organisation and business these will inevitably be outsourced.  Outsourcing ensures that the relevant risks involved in these areas are controlled and mitigated and that costs are also controlled.

As the business and project is being  launched, this will involve a lot of legal documents and input and a corporate finance adviser will look to ensure that all trading areas are covered with appropriate legal agreements and documents including reasonable terms and conditions of trade etc.  A great corporate finance adviser will work 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.

Finally, a great corporate finance adviser will look to ensure that the business considers the most appropriate structure for tax purposes from the start as well as help creating an appropriate tax mitigation plan going forward.   Whilst not an expert, they will ensure that appropriate tax advice is sort and that tax costs are mitigated and planned for, together with sensible structures being put 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.

A great corporate finance adviser is not just or only a finance broker, they will seek be the business’ closest ally, confident, adviser, FD, trouble shooter, solution finder, strategic thinker and planner.  They will be there, with you to launch your business and ensure that you are fully equipped for the journey, that you know where you are going, that you are protected for the journey ahead and that you will know when you get there.  They will be your best business friend as well as its greatest challenger and together you will achieve success.

Corporate Finance and lessons from Titanic

A final lesson, explanation and metaphor for 2012 and the 100th anniversary of the sinking of the Titanic, we can use the analogy of that famous ship, newly constructed, together with the initial plans for its maiden voyage.  The ship, the crew and Edward Smith, the captain can easily be seen as a newly launched, funded and appropriately staffed business, but how did it get there and is it really heading in the right direction.  As a corporate finance adviser helping to ensure that the project is funded and is equipped to tackle the appropriate business journey and using the Titanic as the analogy, you would have considered the following:

  • Is the vehicle the appropriate and robust structure for the journey (i.e. are you also using the right and same rivets, which contributed to the structures failure)
  • Do you have the most appropriate crew and captain/leader with the most appropriate navigator/finance director and engineer/operations director, together the rest of the crew
  • Was Edward Smith, the right captain for job, so close to retirement, with pressures by management to set speed records for the crossing?  A chief executive, has to be strong and sometimes this will mean not succumbing to shareholder pressures,
  • Are you setting in the right direction and at the right speed (i.e. your business plan and growth strategy)?  If you are deliberately heading for choppy waters, are you equipped for that stage of the journey?
  • Do you understand the external factors affecting your journey, the weather conditions, the markets, taxation and various legal factors?   It is now considered that the Titanic sailed into an area where warm air streams came into contact with severe cold air streams from the arctic which not only resulted in an iceberg floating through but atmospheric conditions that went from warm to severely cold air over a short distance and visibility issues that meant that lookouts could not have seen the iceberg until it was too late.  These are all significant lessons for any business, pointing to failure due to a lack of good planning.
  • If disaster does strike can you cope with the aftermath?  Do you have enough lifeboats and do you have a disaster recovery plan.  The decision to limit the number of lifeboats on the Titanic was not only about considering the ship was unsinkable, but was also about the look of the ship and that lifeboats strewn along the ship were not aesthetically pleasing.  How many times have you heard similar argument in business when considering risk matters?  Great corporate finance advisers will help you to ensure that plans B, C and D are considered as well as planning for the worst situation while aiming for the best result.  Risk management is crucial and accepted in all project planning and for any business person this includes protecting yourself and your family financially by way of appropriate structures, ownership and insurance and commercially by way of how you plan to deal with commercial and other factors which can seriously affect your business.
  • For White Star, the Titanic disaster signalled the start of the end of their business, yet time and time again good and appropriate disaster recovery planning has saved a business.
  • Recent analysis suggests that Titanic was doomed from the start, in that a number of key individual problems, challenged and issues contributed to her disaster.   This alone is a lesson for businesses and corporate finance advisers alike.

Many business gurus claim that you learn more by failure than you do from success and with that in mind, a great corporate finance adviser will ensure that you, your business and your business plans are appropriately equipped to deal with the journey ahead.  Perhaps if this approach has been adopted by White Star and Titanic, history may have recorded that Titanic was the greatest ocean liner and success of its age, rather than the tragic disaster that remain as a key moment in our history forever.


Steven Mugglestone BA FCA
,
Citizen Corporate Finance
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.

         

Written by Steven Mugglestone

May 8, 2012 at 6:01 pm

Birmingham Chamber of Commerce Business Finance Surgery returns 6th September 2011

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Birmingham Chamber of Commerce Group in partnership with
NatWest and McGregor’s Corporate Chartered Accountants

Monthly Finance Surgery – Access the finance and advice you need for your business
.

Next Dates
: Tuesday 6th September 2011
Time: 9.00am – 3.00pm
Location: Birmingham Chamber of Commerce, 75 Harborne Road, Birmingham, B15 3DH

The Birmingham Chamber of Commerce Group in partnership with NatWest Commercial Bank and
McGregors Corporate Chartered Accountants is offering SMEs the opportunity to ‘ask the experts’ on a one to one bases about their business finance and funding needs.   Individual appointments are available for a one to one review and discussion with both a commercial and corporate bank funder and commercial chartered accountant/finance director.

Bank funding:
• Choosing the most appropriate funding solution for your business.
• The importance of having a clear rationale for the funding you need.
• Support regarding how a bank approaches the assessment of your funding application

Alternative methods of finance: 

  • How to work with your accountant to explore funding and growth options.
• What to expect from your appointed accountant
• How to get the most from venture capital and small private equity investment.
• How to improve your finance function and how your accountants can be your finance director

This is the opportunity for you to access free consultations and funding reviews and to question the experts on issues affecting your business.   If you are an SME business with T/O above £1m and you would like to register your interest for this event please contact:

Rachel Flanagan
T:         0121 607 1836 

E:        
r.flanagan@birmingham-chamber.com 

Steven Mugglestone BA FCA
www.mcgregorscorporate.co.uk

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/

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.

Advice is on hand to help Birmingham SME’s grow

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Businesses from throughout the City have come together at the Birmingham Chamber of Commerce to ‘ask the experts’ about obtaining finance and to talk about how to trade successfully in the current economic climate.

The Finance Surgery event – which was held at the Chamber’s offices in Harborne Road – was organised by the Chamber of Commerce, NatWest Commercial Banking and McGregors Corporate Accountants.

One of the key reasons for holding the event was to remove some of the mystery around funding options for SME’s and to help them understand the most appropriate funding solution for them. There was also support available to help businesses understand how banks assess funding requirements and how to work with accountants to explore funding and growth options.

The event proved so successful a second event is planned for 22nd March at the Chamber.

Commenting on the event, Claire Bunning from NatWest Commercial Banking, said: “For many SME’s the word to describe recent years has been “survival”, but now that economic prospects are slowly picking up discussions are beginning on how owners can make the most of their businesses. At NatWest we remain active and our appetite to support remains firmly intact as this event demonstrates. Our role as an experienced finance team remains unchanged. We are working with our colleagues and professional contacts such as the Chamber and McGregors to understand and support SME’s and events such as this really will help local businesses and the economy.

Steven Mugglestone from McGregors Corporate Accountants added: “An event like this shows why it is crucial for businesses to work with more commercial accountants to explore the most appropriate business structures, taxation, funding and business growth options, rather than just number crunchers.”

Birmingham Chamber of Commerce Group in partnership with
NatWest and McGregor’s Corporate Chartered Accountants

Steven Mugglestone BA FCA
www.mcgregorscorporate.co.uk

We like to keep things simple, for ourselves and our clients;
We build our business by reducing our clients’ business and taxation costs;
We build our business by increasing our clients sales;
We build our business by helping our clients succeed in their business;
It is that simple and we meet you to discuss all these things for free;

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

February 23, 2011 at 8:52 am

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
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Written by Steven Mugglestone

November 11, 2010 at 3:26 pm