The importance of cake
I love cake. That’s not a statement that will shock those who know me. So, like many, I was disappointed by the news last week that the high street favourite Patisserie Valerie was in financial trouble, all brought about by “financial irregularities”. The sweet-toothed consumers were facing the prospect of being denied their treats and coffee as they headed to work or passed through our stations. Many workers were left uncertain about the security of their jobs.
On an even larger scale of misery, I also caught up with a programme on BBC iplayer about the near collapse of the Scottish banking institution RBS. There was an organisation that appeared to be booming, rapidly expanding but which suffered a dramatic and, for many shareholders, catastrophic downturn. Obviously that leads into the almost inveitable “hate the bankers” response particularly as the events at RBS have helped to set the scene of all of the political turmoil, good and bad, that has followed.
But, amongst all the misery, are there any positive lessons are to be learned for the small entrepreneurial businesses out there. I think so.
One of the first lessons that I was taught during my chartered accountancy training was that a business never failed for lack of profits but plenty failed for lack of cash. It’s important for any business to have a good understanding of what its assets are (those that are tangible and intangible) and to work through how those assets will ultimately deliver cash. It’s important to understand the timelines of that process. You need to know if your customers will pay you quickly and to understand ways that you can accelerate the money coming into your bank.
Once clear, on that you need a good handle on what you owe to others. Most significantly, this includes HMRC who will be gathering their pennies through various taxes, all of which operate on varying timetables. But don’t forget the need to pay yourself. It’s important that you ensure that your business will generate sufficient monies for you to take home the money that you need month on month. Your general cost control must allow you to do this. If you struggle with this control there are various techniques that you can use to help. These can be a strict as using different bank accounts for different types of expenditure.
Money matters can be daunting and scary, particularly in the early days of a business which is operating hand to mouth. Don’t underestimate the value of a professional accountant to help you through this. We often hear that accountants are a necessary evil. I, predictably, disagree. Your accountant is there as a trusted advisor. They offer many more skills than pure compliance. They should be available for you to consult with, to bounce ideas off (as they’ll have encountered many similar issues before) and to give you confidence in predicting your financial liabilities. Your accountant is a friend to your business; allowing you to enjoy the cake.