Is growth having a negative impact on your business?

18 October 2023 / Insight posted in Article

Here in the outsourcing team at Moore Kingston Smith, we are seeing increasing numbers of large businesses that are growing but do not have the infrastructure to support that growth. The first sign is that their cash runs out because they have not planned for new outgoings associated with growth. This might be a better website, new software or more staff to cope with increased workload.

They usually have an established in-house accounts team but they have outgrown their financial systems, causing delay and frustration. Decisions can be made in isolation and at different times without timely management information to rely on. Stock is often not being recorded accurately and VAT is handled by guesswork, leading to costly, even if innocent, mistakes. Sound familiar?

A recent piece of work we performed for a client clearly demonstrates a growing trend in large businesses. Here, we illustrate how we helped the client to solve the issue.

The problem

A marketing business with a turnover at £12 million experienced growth and changes in internal systems. It saw an increase in revenue lines, resulting in an inconsistent flow of cash into the business. While cash had always been relatively stable, it was clear that the decision-makers did not have overall visibility. They were not able to make future operational or strategic decisions. This quickly led to critical cash shortfalls.

The diagnosis

Our team was called in to address the business’s cash flow mire but we soon unearthed fundamental accounting issues. There was a lot of manual processing, duplication and errors in data handling.

The solution

First, we brought the accounting up to date for full visibility of business liabilities and true position of debts. We could then discuss short-term funding arrangements, such as overdrafts and external borrowing.

Once the data was up to date, we implemented a daily cash flow forecast, which predicted a 90-day cycle. By flexing the dates of debt due and closely prioritising liabilities, we ensured that the business was operational.

Having identified the initial short-term cash issues, we helped them review payment terms of their contracts. They realised they could change the terms of some of the revenue streams for staged and up-front payments. Finally, we built a long-term cash flow forecast to sit within their management information report, to be updated monthly. Any variances were annotated with explanations of exceptional events, which enabled them to predict future cash peaks and troughs.

The outcome

Six months on, the marketing business is back on an even keel. Their accounts team is operating a streamlined reporting process, enabling senior management to always have a detailed and current view of the business’s financials. New hires, training and debt repayments are budgeted for against revenue fluctuations.

Help from the experts

If you need help with financial compliance, reporting, data analysis or software systems, please contact us for a no-obligation discussion.

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