Tuesday, 1 February 2011

The Right Numbers

In the last few weeks I seem to be concentrating on financial analysis for and with clients. I have worked both with sole traders and with larger, multi-million pound organisations, and with both sorts of organisations I have led discussions about which of the metrics firms should be watching.

Any regular readers of this blog will know that I have a problem with firms spending too long (or indeed much time at all), watching or thinking about turnover - no matter how tempting it can be. With my sole trader clients I've had some very interesting discussions about accounting systems. As a non-accountant who has run accounts departments, I have some key reports I look for from accounting systems. For me, any system needs to be able to delivery quick, accurate and useful management accounts - reporting on cash flow, gross and net profit. I want to be able to see what money the firm is owed, what money the firm owes, who the aged debtors are, and the bank position.

In my own business, I use Kashflow (an online system which works on monthly subscription thereby meaning I can avoid a capital outlay for software - and that my data is backed up by Kashflow) which seems simple enough to use and which provides an opening dashboard to give me the information I need at a glance. I can also use an iPhone/iPad app to access my account information and so see it when travelling. There are a few competitors - Sage has just brought out a similar, cloud-based, product - but I like Kashflow, the price is good, and the online and email support is pretty good.

In larger firms, I try to introduce the concept of a 'Project Gross Profit' (or a 'Matter Gross Profit' in lw firms) - which examines Revenue and then accounts for direct costs and salaries to arrive at PGP. This is a way of examining the immediate profitability of individual projects or tasks while accounting for the most liquid of overheads - people. It is usually easy to allocate time to projects and tasks and so the calculation is simple. I also try to get this measurement adopted at the Costing stage - so that the firm can be sure that the work they are pitching for will be profitable, and not just some attractive-looking turnover.

Times are still quite tough for most firms, and so it is more important than ever to be sure that every project, every person and every task is providing profit to the firm - and that the firm has the information to be sure that this is happening.

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