Financial Management & Business Processes

Oh … great shoebox… how is our cashflow this month?

When I said get aprofessional tofind our profit…

start

Stages of Fin. Mgt.

• The shoebox - hide it here and give to accountant annually

• Divining information - starting to look at your own financial information to help run the business better

• But can you see the wood for the trees? (particularly if you’re not used to reading financial information & translating into useful knowledge)

• Benchmarking - comparing you to ‘the rest’ … a dashboard helps here

Wouldn’t it be good if …

… you had a one page view of your financials

… preferably without having to interpret spreadsheets before

being able to reach conclusions about the

state of play

MyCake provides:

• A standard financial benchmark in visual format

• Access to benchmark data so can generate your own bespoke comparisons e.g.– Sector– Size/age of company– Geographic region

Working in vs. working on the business

• Next pay cheque?• Next customer?• Can I afford others?

• Hop from one project to the next … often dancing to the customers’ tune

• Income targets to aim for

• Size & scale of projects

• Short, medium & long term growth needs

• Idea of where work will take you

How do you …

• Know what to aim for?• Know what good is?

… pub conversations, chats with colleagues, gleaned from previous employers, clients

… none of these are objective opinions!

Wouldn’t it be good if …

… you had a source of accurate comparisons

… which was sector specific… that was always up to date… accessible at any time

(and indeed from anywhere)

Wouldn’t it be good if …… you could share the

benchmark with your business advisors & investors as well

as your board… and yet was confidential and didn’t mean you sharing your information directly with

the competition! (and being able to request new

KPI’s in the comparisons would be nice)

What to compare?

• Income … relative to– age of company– per employee– sector Looking at you vs. best, worst, average

• Split b/w sales vs. grants• Income growth rates

Wouldn’t it be good if …

… you knew where you stood vs. best, worst and the average?

… so you could identify goals to take you into

the top 25%

And it’s not just about income…

Comparison of the now:• Gross & net profit comparisons• Income : direct : indirect cost ratios• Your greatest cost as a % of turnover and how this compares– Materials/production - if product based– Labour - if service based

• Norms for a variety of indirect costs e.g. legal, accountancy, insurance, rent, marketing expendistures

Looking ahead …

• What needs to change in your cost structure to move you into the top 25%?

• What costs have you not allowed for in your business model (that you’ll need as you grow)– Cost of recruitment & redundancy– Pensions & other benefits– Maternity benefit… the hidden costs of ‘people’– IP & legal … protection of tangible and intangible assets

– Research & Dev’t … currently creative firms spend more on bank charges (1.3% of t/o) than on R&D (1.1%)!

Would these sorts of comparisons be useful?

How can MyCake help?

• Insights for £250-£750k companies based on existing data

• Individual benchmarks for 2007 onwards

• Bespoke benchmark for Screen Yorkshire– The plan– The first steps

• Register at www.mycake.org

Pointers for the £250-750k crowd

• Income sources & client base• What % of turnover do you spend on wages?

• Do you know what you spend on marketing & why?

• Net vs. retained profit• R&D budget

Photo of bulletins 1-4

Recap of benefits accrued …

• Clear picture of your current position• Comparison to best, worst, average and top quartile … so you can see your strengths & weaknesses

• … so you can work out what to do to improve

• Clear picture of what ‘the best’ looks like (both vs. you now and your goals)

• Route to ask for new stuff &/or analysis - direct to me or via mycakefinancialmangement.co.uk/blog

What & who else is this information useful for?• Investors• Shareholders• Talking internally to employees• Banks & advisors• Goal setting and KPI’s (linked to bonuses & dividends?)

• Marketing messages & talking to clients

Where do I sign?

• Register at www.mycake.org• Pick Screen Yorkshire as your ‘facilitator group’

• Complete the profile information about your company

• Add your financial data in for one or more of 2007 onwards (annual forms)

• For help call Sarah’s PA Hannah Martin to set up a chat 0844 561 0747

Terms & ConditionsHighlights:• You own your data• Our security & confidentiality measures prevent single data sets being visible … we’ll only show you aggregates

• You have to give before you take (on the individual benchmark)

• Screen Yorkshire & their partners can access individual data sets for use in gov’t reporting (in aggregates)

• Back-up & site security similar to a bank … look after your password!

Questions?

Those figures again:• More than 50% on labour and/or production is too high

(30-35% is better)• 40% net profit in service businesses is good• You’re looking for 80% of business from 20% of customers • But more than 50% t/o from 1-3 customers is too risky• R&D spend - 5-10% of t/o and balance of risk, timescales

& cost of various R&D plans• Marketing spend - 5-15%• Training? - have some budget for this (staff retention)• IP? - clear approach even if no budget• Travel? - manage this• Hidden costs of personnel? - unhide!• Remember if you want investment you need an exit route

for the investor - payback of loan or sale of shares/company … so there needs to be enough profit for this!

Average vs. the Best - 2008

Average:• CoGs - 33.2%• Salaries - >40%• R&D - <2%• Net profit - 23.8%

The top 25%• CoGs - 18.7%• Salaries - <30%• R&D - <2%• Net profit - 56.8 - 85.8%

Financial mgt - some basics

• Knowing what ‘good’ and ‘best’ is for your sector

• Annual budget and tracking of reality vs. plan• Monthly mgt accounts w/i 2 weeks of month end• Knowledge of key factors that affect financial health & clear processes for managing these

• Sales/profit goals with connection to senior mgt individual & group KPI’s

• IP protection & commitment to dev’t of assets• R&D budget and process for managing risk (financial & other)

• Cost of winning business (marketing, hit rate)

Grant vs. Investment mindset

Grants• No payback• Does profit matter?

• R&D vs total cost of getting to market

• Policy & politics plays a role

Investment (loan/equity)

• Payback + interest/ROI• Profitability matters• If ain’t enough to get to market then not good for either party unless clear stages

• Financials are a deal maker/breaker