What's Most Important – Profit or Cash?

It's always good to know you are making a healthy profit. Regular positive profit and loss reports can give you confidence that your business is developing well. But profitable companies have been known to have cash flow problems and even to go under because of them.

If you are a regular reader of these pages, you'll have seen plenty of articles here about cash flow before. As experienced bookkeepers, we know just how important it is to keep on top of your cash, and we can't stress this often enough.

A Hypothetical Cash Flow Problem

Suppose you received a new large order for multiples of a product and had to take on extra staff and buy in extra materials to fulfil it. All your efforts go into getting it right and producing what is wanted on time. If you are a service company, rather than sourcing more materials, you might have to pull in people from other jobs to form the perfect team for the new client.

You lose focus on your regular customers, the rest of your order book, and on what's happening to your cash. Suddenly you hear from your bank that you've reached the limit of your overdraft. How long will it be before you can expect to be paid for the new work on which you have been spending most of your resources? How are you going to pay your staff and your suppliers?

The hypothetical example above shows how easily, and quickly, it could be to fall by the wayside if you don't look after your cash. It doesn't matter how much profit you've made on paper if you don't have the cash to go forward.

Keep Your Eye on the Bigger Picture

Make time for regular meetings with your bookkeeping staff or outsourced service providers. The latter can help you to look at the implications of the reports they produce for you. Do you need to be chasing up debtors or cutting costs in other areas?

They could also demonstrate trends such as dwindling repeat orders from long term customers. Then you can look at your customer service, see if there have been any problems and try to put them right. Or you can look for shifts in the market where you need to adjust your strategy. Perhaps there are new products out there that are outshining yours, either because of genuine improvements or clever marketing tactics. Your business will need to respond and remain dynamic to continue to make a profit and develop.

Do you Have a Good Accountant?

Do you have an accountant, and is your accountant good for your business? If you haven't appointed one yet, how will you know when you've found the right one?

Just as in all walks of life, accountants can be excellent, or not worth having. If they are qualified members of one of the professional organisations, they will at least be competent in the basics. If they are not qualified, it doesn't necessarily mean they are no good. Many excellent accountants have plenty of experience but no qualifications.

What Makes the Difference?

What you really want, in addition to the basic competencies, is someone with knowledge and experience of your type of business, and the markets in which you compete. But you don't want them to have any conflicts of interest. It's not a good idea to have the same accountant as your biggest rival, for example.

How to Find the Right Accountant

Many people feel more confident if they choose someone who has been recommended. But you still need to know the person has the right kind of experience for your circumstances. Ask probing questions, then listen carefully and respond to the answers.

If you want to be sure of having a qualified accountant, you can check the membership lists of the Institute of Chartered Accountants of England and Wales, and the Association of Chartered Certified Accountants (ACCA). Choosing a suitable member gives you the comfort of knowing they will undertake ongoing training to keep up to date, and will probably have professional indemnity insurance. It also means you have a complaints procedure to follow, if you are not happy with them.

Shortlist two or three and arrange to meet them. If the accountant has lots of questions for you, it probably means he or she is careful to find suitable clients and will do a good job for you. Be truthful in your answers. If there are problems in the business finances or in your background, they need to be aired up front.

Don't forget to discuss your choices with your outsourced bookkeepers. They will have experience of working with accountants, and may have valuable input that will help with your decision making.

Nurture the Working Relationship

When you have found an accountant with the right experience and expertise, who will care about your business and be keen to help it succeed, you should be sure to forge and maintain a good working relationship. While you don't want to get too familiar with your accountant, you do want to maintain mutual respect and strike the right balance between professionalism and friendliness.

Compliance With the Bribery Act 2010

On July 1^st, the Bribery Act came into force. Do you know what this means for you and your company? If not, you need to get familiar with it, because the penalties for non-compliance can be crippling fines and even imprisonment if the offence is serious enough.

Policies and Procedures

If you are a small business with employees, you need an anti-bribery policy and procedures in place for the prevention of anything that could be construed as bribery. Your staff should be briefed and warned that offences will not be tolerated. You need to keep records of any occurrences or potential risks.

Having a written log is your proof that you are taking the bribery laws seriously and trying to comply with the Act. Another good idea is to hold training sessions, and have a training manual and materials that can be available for inspection.

Put incident reports and reviews of your anti-bribery policies and procedures on the agendas of board or senior management meetings, so that discussions can be minuted. These minutes will be further proof of your commitment to the new legislation.

Failing to Prevent an Offence

One of the offences listed is the failure of a commercial organisation to prevent bribery. So even if you are personally innocent, as a business owner you are deemed responsible if a member of your staff offers or accepts a bribe in exchange for a favour of some kind related to the business.

You could appoint a member of staff to take on a policing role and to assess the risks of bribery in your sector and the markets in which you operate. Particular care is needed when new external relationships are set up, as you can be implicated by association with any wrong-doing. Make sure all your joint venture partners, associates, agents and representatives are squeaky clean to avoid prosecution by default.

Entertaining Customers and Targets

Corporate entertainment must be appropriate, and this is a grey area where you must make your own decisions about what can be included. While all this is much more likely to affect larger businesses, you could be at risk even as a sole trader, if you invite potential clients to over-extravagant events or meals in the hope of doing business with them. It will only take one complaint to be followed up by the authorities, to put both your reputation and finances in jeopardy.

The implications of the new Bribery Act are far reaching. All entrepreneurs need to understand them and take appropriate compliance action.