2 May 2017: Alan Limb from BRI’s Southampton Office reminds us of the need to understand financial information before acting on it.
I was recently asked to meet the directors of a company. They were concerned about the future of their business because they had lost a contract that comprised 25% of their turnover. They feared that insolvency was inevitable. I asked them to have available current information regarding the company’s finances so we could discuss things fully.
When I arrived, the directors handed me the details that their bookkeeper had produced from the company’s Sage system. It was up to date but not in a format that the directors could interpret. However, after a short conversation some key facts emerged:
- The lost contract required a high level of management time each day to comply with relevant legislation;
- The two long serving direct employees who worked on the contract had transferred under TUPE to the competitor who had won it. Therefore the company had avoided any redundancy costs;
- One of the employees required daily management by a director to ensure that he arrived for work and performed his duties;
- The company had purchased expensive fixed assets for the contract that were now surplus to requirements. These could be sold which would reduce finance/insurance costs and generate cash to be reinvested in the business;
Consequently, the loss of the contract was probably an opportunity for the company rather than a threat. Turnover had fallen but profit would increase overall. It also gave the directors time to focus on managing the business more effectively in future.
If you have a client whose business is struggling due to a lack of effective management information, please contact one of the BRI team for help.