A business health check in 2009 will pay dividends this year more than ever, says Peter Baber. And there are plenty of people to help you do it.
Business Link Yorkshire, the organisation that has been restructured in recent years to make it more business facing, is launching a new service this month, which it says is exactly what businesses have been crying out for: a business health check.
The service, according to a spokesman, is three-pronged. Businesses can go through a process online that will assess how they are doing now and where they should be going. And if they want a more personal service, they can speak to a specially trained adviser over the telephone, who will take them through the process more thoroughly.
But if you feel you need something even more tailor-made, and conducted on a one-to-one basic, that is alsopossible. For businesses that are one year old, £1,000 is available to pay for an adviser to meet you for a day and then spend half a day writing a report.
For businesses that are between one and three years old, and have a turnover of at least £60,000 per year per employee, it is even possible to extend that to £2,000, covering two days of face-to-face consultations and half a day’s report writing.
And this doesn’t have to be with an adviser that only Business Link can provide. If you prefer the comfort of your accountant, you can opt for that instead, although he or she will have to follow a set model that Business Link says is has developed in consultation with some of the country’s biggest accountancy firms.
This would cover everything from working capital arrangements to looking at margins and the cost of sales, as well as investment planning and personnel issues.
Business Link’s chief executive Helen West says the timing of the service is totally appropriate. “Some companies are thriving and growing but others are experiencing cash flow problems for the first time,” she says.
“This health check will identify potential problem areas and address other issues that businesses should consider, such as new markets and making the best uses of existing resources. No business should fail because of lack of access to information and advice.”
That may be. But given the harsh economic conditions, can a business really afford to spend time away from the coalface thinking about the future?
The question is irrelevant if they are members of chief executive organisation Vistage International, because if they want to continue being members they have to. Group chairman Peter Chambers says he sits down with each member every year at this time and assesses where they are going on a business and personal front.
To avoid what he calls “paralysis by over-analysis”, they tend to focus on only a few key areas. This means looking at the figures from two years ago last year and the year ahead, and looking at total sales figures such as sales and total headcount.
But the focus is ruthlessly on establishing key performance indicators to be followed by the individual, his or her immediate management team and, if necessary, every member of staff. Part and parcel of this is drawing attention to what the company is making on each sale – in other words margins – rather than on turnover figures, which Chambers says too many companies are still happy to rely on.
“It’s true there are some parts of a business operation it is hard to measure margins on, such as the return you get from PR,” he says, “but you can analyse margins down to about 85 per cent of your business, and it is much better to do that than measure everything purely on turnover.
“Why wouldn’t you want to know how much you were making on each product? People say they are not used to looking at margins, but actually business used to look at margins all the time when they were paying staff. It was called piecework.”
There is personal goal-setting, too. “We get them to name the top three achievements and disappointments of the past year,” says Chambers, “on a personal and business level, and then look at the best opportunities and key stages of the year ahead.”
Chambers says such rigorous testing is one of the reasons why Vistage has not lost any members in the downturn – not bad when you consider that membership is a significant investment.
But Vistage and Business Link are not the only organisations offering such a health check. Grant Thornton in Sheffield, for example, publishes a “Back to Basics” flyer to help businesses run through a check on their own. Audit partner Paul Houghton says: “It is proving to be useful as we work with our clients to ensure they are set up as best they can to deal with the current economic climate.”
But what if you want something a bit more piecemeal? What really should you be looking at in this early part of the year?
Houghton says Grant Thornton’s flyer is aimed at helping businesses “focus on cash”, and it seems that many advisers in Yorkshire would agree that at a time like this cash, or working capital, is king.
“A good starting point is to ensure that you are managing your working capital effectively and controlling your cash flow,” says Christopher Brown, business recovery partner at Hart Shaw in Sheffield.
Richard Fleming, restructuring partner at KPMG in Leeds, points out that showing that you are focused on that could help in any negotiations you have, too. “A demonstrable focus on cash may help refinancing discussions with potentially nervous bankers who may need to be convinced that everything possible that can be done is being done,” he says.
Simon Trobridge, business services director at Deloitte, says actually getting more cash out of a business is not as hard as people may think.
“It’s amazing to see what you can make if you focus on debtors,” he says. “That drives a lot of cash out. But there are tax-saving ideas, too, particularly at a time like this. Have you made losses this year, for example, that you can write off against tax? And what about VAT? Are you paying it in a way that is most cost-effective for you?”
There are other kinds of costs, too. Gillian Hood, director in business risk services at PKF in Leeds, says any manufacturing company should be looking at factors such as how much waste they end up with in each cycle of production, and whether the product is really making money for the company. In other words, margins again.
But it’s not all about finance. She adds that every company should also be making sure the contracts it has in place with its suppliers and clients are robust because the many long years of boom times may have tempted too many companies to believe that doing business with no contract, or with a contract that was never officially signed, is all right. Now it is not.
“You need to be particularly aware of situations where there is a contract but not everyone is fully aware of what it says,” she says. “Because we all know that sales people can sometimes promise the earth and end up agreeing to something that cannot be produced. Such variances can set a precedent.
”Obviously at a time like this no business would want to suddenly call in all its suppliers to discuss contracts – many of them would see that as a sure sign the business was in trouble.
But Hood says it is possible to be diplomatic. “You can easily explain how having such discussions is to everyone’s benefit,” she says.
Nor should a reassessment of where your business is necessarily be a doom-laden project.
One cost every business should assess on a yearly basis is insurance, and Neil Baxendale, Leeds sales director of Jardine Lloyd Thompson, says some companies that have not been doing that recently may be in for a pleasant surprise.
“Many people are still relying on insurance premiums that were devised in a harder market, particularly one that immediately followed 9/11,” he says. “In fact, over the past three or four years the insurance market has certainly softened.”
He says business owners should also keep a keen eye on credit insurance and employer’s liability insurance – two areas that attract more claims in a downturn and which as a result some insurers are already withdrawing from.
“Any good insurance brokers should act like an extension of your management team,” he says, “and should be able to triangulate between cost of sales and costs of premiums to give you a decent result.”
Whatever the business or the situation, the key message seems to be that, yes, you most certainly can make time to run a health check.
Trobridge is one of many advisers who think an annual review is essential but, unlike some, he speaks from experience. Before he joined Deloitte he ran his own company, Optimum Group, for more than a decade before successfully selling it in 2004.
“We put together yearly targets,” he says, “but every year we also forecast what would happen if we missed these by five, ten or 15 per cent. Fortunately we only did really badly once.”
Other companies at present may not be so lucky.
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