Steven Mugglestone

The more I learn, the less I know

Posts Tagged ‘improvement

Our Lessons in Change and Improvement:

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All organisations realise that change is inevitable to achieve continued improvements. Change and improvement is an on-going process and part and parcel of the life and success of a business. Sometimes, however, in order for the business or organisation to achieve the aims and ambitions that they set out with, change has to be a bit more urgent and radical.

Sometimes also an SME has to face radical change to help the owner build the business and achieve a successful exit. Most corporate finance advisers agree that to maximise the value of a business, the owner should be able to walk away from that business and it should be able to operate successfully by itself, without their input. This can be radical change for an entrepreneur who can be typically driven and controlling. How can you ensure that the required change and improvements are implemented successfully and this is sustained without the owner/manager reverting to “doing everything themselves”.

Here are some of the areas that from experience we believe can be the key to the success of change and improvement:

• Love your employees
• Building capacity
• Connect peers with purpose
• Learning is the work, consistency and innovation
• Transparency and openness
• System learn (and improve)

Love your employees

Focus has to be given to your employees. The key is both bringing them into the development of the organisation and ensuring continuous learning and development. Appraisal systems, development programmes, sharing information and regular staff consultation is not just for large organisations. It is the key to ensuring that your employees are part of the journey of the business and an integral part of the team and this will help to ensure successful change and improvement continues.

Building capacity

Automation and documented practices are the order of the day, but people are the real key to building capacity and the ability of the business to achieve and produce more. To successfully build capacity for your organisation it will mean looking at competencies, resources and motivation. To use an analogy getting the right people on the bus; getting the wrong people off the bus; getting the right people in the right seats; ensuring that all are motivated (and remunerated, seeing that they are sharing in the success of the business) to achieve and ensuring that the bus is in good working order.

The other key to building capacity is a documented system/process. Without the need to go into details, successful organisations such as McDonalds can look to ensuring that a new restaurant franchise is successful in opening and continued operations as the systems and processes are well established and documented, ready to be used and adopted as and when required.

Connect Peers with Purpose

Your staff can learn from you and each other (which can also mean carrying on doing the same thing in the same way over and over again, as that has it has always been done). Staff, generally want to learn and improve and a key way to achieve this, is to share good practice with others.

Purposeful interaction works effectively under three conditions:
• When the values of the organisation and those of the individuals and group gel and mesh
• When information and knowledge about effective practices are widely and openly shared
• When monitoring systems are in place to detect and address ineffective actions, whilst reinforcing and consolidating effective practices

How can a small business achieve this (without fear of losing staff). One suggestion is that your accountant will act for a number of businesses. They can either help directly, perhaps look at having one of their own staff help one of yours directly to share good practice and ideas. They could even introduce you to another client with similar aims and look to their own staff to start to share good practice (under an appropriate agreement).

Learning is the work – consistency and innovation

Looking at the success of such organisations as Honda, the single greatest difference with them and other organisations is the depth of understanding of their employees regarding their work.

The essence of Honda’s approach to improving performance consists of three components:
• Identifying critical knowledge
• Transferring knowledge using job instruction
• Verifying learning and success

The key to all of this is relentless consistency so that everyone fully understands their work, helps to train others and all are continuously appraised.

Transparency and openness

On-going data and access to seeing effective practices is vital for success. Employees need to understand the road that they are on and be given information which shows that the business is on that road, or if not how the business is getting back on it. Information sharing is key, it does not mean everything, but key performance indicators should be identified, agreed, shared and monitored.

Another key area of transparency is to consider a 360 degree appraisal system, where the directors/owners of the business are open to appraisal, review and recommendations by their staff. This can be scary for some, but has proved to be effective for all and many large and successful organisations now use a 360 appraisal system.

Systems Learn

Continuous development and learning depends on developing all of the staff, all of the time. The fact that organisations such as Honda and Toyota can succeed over decades and that these companies show no leadership effects or changes from succession and continuity is because of a robust set of inter-related management practices and philosophies that provide advantage above and beyond the ideas or inspirations of a single individual.

Once a system and process is agreed, it should be documented. Improvements to the system can be addressed and documented accordingly. The key efficiencies gained from this are:
• Staff understand what is expected and have guidance for work
• The systems will continue to reflect the best possible practice available
• Staff will be supported by the process and knowledge
• Staff changes and new staff can be accommodated efficiently

 

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Gut Instinct Does Not Replace Good Management Information, Just Ask the England Cricket Team:

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Gut Instinct Does Not Really Replace Good Management Information

I have seen it on numerous occasions, when appointed as a part time finance director.  The owner knows their business inside out, or so they say and believe.  The classic statement, “I know my business income and costs, a third direct costs, a third overhead and a third contribution to financing.”  So after a brief review of the actual information put together, which has never been done, my reply has been, “So what’s the other third then?!”.  “Oh.” is usually the reply.

How to ensure rock solid business decisions

The above situation is more common than you think and, at least in part, the tendency to make decisions on an ad-hoc basis is down to the general lack of good management information. If the numbers are not at your disposal, and that is financial and non-financial, then many businesses have little choice but to make decisions based on gut instinct.

Contributing to this issue is the unreliability of monthly management information, attributed to managers disregarding early warning signs of problems in profitability and liquidity.   In larger organisations with a number of senior management including sales and operational management, a classic technique in order to duck and avoid their own shortfalls and potential failings is to “dis” the management information, picking on the commas, the brackets and the spelling as evidence that it cannot be relied upon.  Nero and Rome aflame comes to mind.

Management is certainly moving from an art to a science. With the on-going computerisation of all business systems, moving on to cloud based systems allowing access and use on the go and more information becoming available to managers on which to make decisions.

With facts at hand, most business decisions become logical. For example, if you know that advertising in using email provides a 15% response rate and you convert 50% of these, as against another that generates a 5% response rate with a 50% conversion, the rational decision is to invest more in the advertising area that provides the greater return. The basis of decisions moves from gut instinct to evidenced based logic if the right reliable information is available.

What if you have poor management information?

The lack of reliable and timely management information can create many problems for entrepreneurs and owner mangers. All management training and business planning relies on being able to measure things to be able to manage.

One of the key reasons why the England Cricket have become the world’s number one test team is that they have an advanced system of information advising of how opponents react to certain styles of play and where balls need to be pitched.  This is based on reliable data from actual statistics.  And do you know what, ….. it works!

The consequences of not having reliable management information are clear – the business will not perform to its potential, because the right decisions are not being made.   The importance of Key Performance Indicators (KPIs) is vital for this success and the England Cricket team are a classic example of this.

Privately owned businesses that underperform have a significant impact on the financial well-being of the owners and, perhaps even more importantly, will create a level of stress that lowers the return for effort to an unacceptable level.

What can you see happening?

Everyone, at some stage, knows how it feels to need vital information but not have it to hand.   What may not be so obvious is whether you have information about the right things or whether the information itself is accurate.

A key part of the business planning process is to identify the business drivers, the KPIs, or those factors that drive your revenue and your major costs. KPIs can be seen as numbers but are not necessarily at all financial.  Examples include numbers of calls per hour, numbers of bums on seats, footfall, downtime, spend per head, machine hours, the weather and temperature, benchmarking against other businesses etc, etc.

It is crucial that your management reporting system measures such drivers. Being in a situation where the business drivers are not known or measured can be your warning sign. Another warning sign to note is major fluctuations between monthly results. This might indicate unreliable information and if that is the case, the warning bells should be sounding.   One example of fluctuations was order numbers, with a business having two good months and one poor.  On further review, the director responsible for sale, updated the sales brochure every three months, so was not out selling.  Easily fixed, but not discovered until the information was made public.

Interested in the issues?

Work with good business advisers, ones like McGregors Corporate, that include partners who have actually been Finance Directors and have been responsible for these improvements first hand.  Work with us and we both can obtain a proper understanding of your business issues, drivers and KPIs.

After that we can work with you to develop a meaningful business plan (which can be very simple) and forecast that you can measure against.   Being able to measure accurately and frequently the mission critical elements of your business will be the start of key improvement to your business, its profits and its cash.  Which business person does not want to see that happen?

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.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.

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.