Why football isn’t normal business

I’ve posted a number of links onto our facebook page recently to articles about the ongoing saga at Liverpool Football Club.

Going back 20+ years, by the late 80′s and early 90′s Liverpool were not only far and away the most successful team in Britain, the club management were also some of the most vocal exponents of a breakaway “elite” premier league.

Whilst the clubs supporters were bemoaning John Barnes demands for a £10k per week salary (hard to imagine now), the management were sending the club and it’s rivals down a commercial path that would generate much greater riches (and hopefully, success).

It has to be said that in most other areas of business a substantial increases in revenue, continued loyal customers, world class assets and worldwide brand adoration would be a massive target to aim for.  These are truly world renowned businesses (Apple?).

I’ve always thought football is different though.

The revenues stay as long as the business remains successful, the business remains successful as long as it can continue to attract world class assets, and the assets can continue to perform at world class levels.

Brand loyalty is a little harder to diminish, especially for a team such as Liverpool who have huge numbers of followers across the world.  However, with competition fierce for worldwide support, it only takes two or three seasons of mediocrity for all the previous goodwill to be undone.

And that leaves the supporters of the club – and by supporters I mean the ones that either regularly, or infrequently, go to the matches.  The paying customer if you like, where paying means being counted through the turnstile.

These “customers” remain loyal to the “brand” however badly it performs – there’s no question any of them would consider switching brands and moving to a new supplier.

They essentially have two options (1) Put up with the inferior product, pay less for it, and hope that with good management one day a better product will be produced; or (2) Stop buying that product altogether – walk away.

It’s difficult to understand why the current management of Liverpool FC now want to take legal action to maintain control.  The sale of the club is never going to be higher than the offer currently on the table.  This sale essentially allows the current owners to minimise their losses.

If they’re successful in the legal action, what will they have left in their business?

• a decrease in asset performance
• decrease in the standard of asset purchases
• an eroding brand
• reducing revenues

Oh, and more than likely, lots of supporters who decide to walk away.

That’s why I think football isn’t like a normal business.

You can probably tell where I spend some of my spare time, but this situation isn’t unique to Liverpool Football Club.

What do you think?

UPDATE: As I was publishing this blog on Friday, news broke about Manchester United’s £80m loss.  I subsequently saw a former colleague, and MU season ticket holder, yesterday and he told me that MU stated one of the reasons for their lower revenues/profit this year is due to reduced transfer fees (no more large Ronaldo type sales).

It seems selling the very best assets (to competitors) is a key driver in the MU business plan.  Where else in business would this happen?

As my friend and ex-colleague plainly said, it’s not just the shirt colour that our two teams now have in common.

Martin

www.mymanagementaccountant.co.uk

Growing pains

I warned companies earlier this year not to be come a victim of the expanding economy, but after a recent conversation with a client it’s worth revisiting again.

Business owners are often under the impression times are tough and cash is tight initially in the early days of their new venture, but once the sales start flowing the pressure will ease considerably.

This may be true for some lucky business, but there are many more examples where expanding companies have been a victim of their own success.

Take note of the following and you will certainly ease the growing pains in your business:

• Don’t forget to invoice your customers. A basic, but very real, issue as people become so busy dealing with orders they actually forget to send the customer an invoice.  If possible, incorporate invoice generation somewhere into your order delivery system.

• Once you’ve sent the invoice, make sure you chase the debt. It’s a fact of life that most customers don’t pay you without being asked, so get used to the fact that you need to have those conversations.  If you don’t like chasing debts, then outsource the task to a specialist.

• Manage your suppliers. As much as you’re chasing your customers, you’ll also be receiving numerous phone calls from your suppliers all asking for the money you owe them.

1. Don’t pay before the debt becomes due.  Why else would the supplier give you credit terms?
2. Ask all suppliers for extended terms of credit.  This is likely to be more successful where you repeat order and have a good payment record and relationship with the supplier.
3. If cash is particularly tight communicate and be honest.  Suppliers don’t like being ignored, and don’t like being told something that it isn’t true when you owe them money.

• Manage your stock. If you’re a retailer, or someone involved in manufacturing or construction, you’ll be buying more stock to meet demand of your increasing sales.  It’s easy to lose control of the stock.

1. Don’t order too much stock.  You’ll still be holding it when the supplier needs paying for it.
2. Likewise, don’t order to little.  You may need to buy quickly at a higher price in order to meet customer demand.
3. Manage stock loss and damages.  This can potentially devastating to the long-term health of your business, so make sure you implement systems to eradicate losses and damaged stock.

• Manage your staff. For now it may be just you, but as your business grows, then the number of staff you employ will increase.  Make sure you’re new team are as keen as you when it comes to cash flow.

• Do an investment appraisal before buying new assets. Before you’re business signs the loan agreement and purchases the new asset, make sure you’ve worked out exactly what the total cost of the purchase is, and how (if) sales and profit improve as a result of the new asset.

• Produce a cash flow report on as part of your management information. Daily, weekly, monthly… whatever works best for your business, you need one.  Logging on to your online bank account whilst holding your breath is no way to manage the cash of your business!

If any of the above sounds familiar, please get in touch.

Martin

www.mymanagementaccountant.co.uk

Our new website

I’m pleased to announce that our new website has launched.

We wanted a website that highlights understanding that as CIMA management accountants, we understand running a business is much more than just about the numbers.

There will be more added to the website over the next days & weeks, including plenty of news and resources as well as access to Xero, the world’s easiest accounting system.

In the meantime, please do visit it and let us know what you think.  We appreciate all (constructive!) feedback.

Martin Bown

www.mymanagementaccountant.co.uk

“Value Added Services” or “Essential to Business Success Services”

I don’t mind the term “compliance” accounting, and I certainly don’t have a problem with ensuring my clients are fully compliant (they are, and in good time).

What I do find difficult is informing potential clients I focus on the “value added” services.

Qualifying with CIMA as a management accountant, and having almost 20 years industry experience prior to running my own business, I don’t view the core services I offer as “value added” but as “essential”.

Whilst “strategic business reviews”, “cash flow forecasts” and “balance scorecards” may seem like a mystical world to some, to the management accountant they’re the standard output.

Of course, I understand the reasoning behind the term “value added”   “….. Let us take care of the compliance work, and we can also add value to your business by doing xyz….”

Sadly too many businesses are led to believe compliance work alone is an entirely satisfactory way of generating information required for key business decisions.

My alternative explanation is “I’ll work with you and deliver information essential to helping you manage your business more successfully, and as a by-product, the compliance work pretty much takes care of itself”.

When I put it like that, I suppose it is easier to say I’m adding value!

Martin Bown ACMA

www.mymanagementaccountant.co.uk

High Street Dreams

After finishing work yesterday evening, I turned on the TV for half an hour, and in the event caught the second half of  the BBC’s High Street Dreams, a program based around two successful business people mentoring start ups.

Jo Malone made an excellent comment to two business partners before their pitch to the MD of a national toy retailer.

Immediately before their meeting she told them that retailers are interested in the long term future of their suppliers (and products) rather than keen to chase a one off sale.

How true is this for so many different businesses, in so many different sectors?

It’s short & simple, which is probably why this a great piece of sales advice to remember as head into your next sales meeting.

Martin

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Don’t be a victim of the expanding economy

After a tough 18/24 months all the signs are pointing to an improving economy.

Now is the time to be very cautious.

Businesses often need to meet the demands of an increasing order book with increases in stock, additional staff or other resources.  Only the lucky few businesss will increase sales with little or no increase in costs.  So as the business generates higher sales & more cash, it also needs more cash to pay for the resources.

A simple and highly effective tool for any business owner is a cash flow forecast.  Simply explained, the cash flow will record cash coming into the business and costs due to be paid out by a business.  At the very least, the cash flow needs to look a month ahead.  In certain business, such as manufacturers or builders daily or weekly cash flow forecasts will certainly be a better solution.

We have plenty of experience of managing cash and implenting cash flow reports, so if you don’t currently actively manage your company’s cash and you’re unsure where to start, please get in touch.

Don’t let your company be a victim of the expanding economy.

Martin Bown ACMA

info@mymanagementaccountant.co.uk

www.mymanagementaccountant.co.uk

Not too late to set 2010 targets

As we’re almost a full month into 2010, it’s worth reminding you that I previously wrote about why I think  it’s vital for a company to plan their success by writing a business plan, and to revisit and amend this plan on a regular basis.

If you haven’t set yourself a budget, or even scribbled down a few targets for 2010, do it now.  Better to have an idea how you want the next 11 months to develop than suddenly get to December and wonder why your business underperformed in 2010, if you’ve had a better or worse year than expected, and how you’re going to continue into 2011.

If you want some pointers on how to get the process started, or know business owners who need help, please get in touch.

Martin

www.mymanagementaccountant.co.uk

What’s your daily KPI?

As my clients will tell you, I’m constantly talking about the advantages of producing regular financial information to help their businesses achieve success.  I put little, if any, value at all on annual information such as statutory accounts.

So I was interested to read in yesterdays Sunday Times magazine that staff at Goldman Sachs review daily profit & loss accounts.

According to Liz Beshel, the firms Global Treasurer (put another way, the person at Goldman Sachs who looks after the money!), reviewing daily P&L’s help the firm see market trends clearly and early, and helps them to minimise risk better than other banks.

For example, Goldman Sachs noticed that something was happening with sub-prime mortgages a year before all the trouble started with the banking industry.  Acting on the information they had from one week of downward trending information (one week… only 5 days!), the bank was able to reduce their exposure to the mortgage market.  Consequently, when the credit crisis took hold Goldman Sachs was hit with $1.7 billion mortgage losses.  By comparison, UBS suffered $58.0 billion.

Now, I realise that many SME’s (my clients included) simply don’t have the resources to produce daily profit & loss accounts, but I don’t see their size as an excuse to ignore measuring their business performance regularly.  Large businesses are successful because they have plenty of relevant information to hand – SME’s should be no different.

Work out what the one key performance indicator is in your business, and measure it daily.  Your business will be all the better for it.

Martin

Alan Sugar – is your company “fired”?

I was surprised when I heard the comments made by Alan Sugar earlier today.  Apparently struggling small companies are “moaners”, and more, “they don’t need the bank, they need the insolvency practitioner”.

We’re living in the worst “global” economic downturn since records began.  They are “unique” times.  We know this because the very same government that appointed Lord Sugar keep telling us.

What surprises me more is that throughout the history of the Apprentice, many of the contestant challenges involve using the services of, buying from or selling to small businesses.  I thought this was deliberate choice because Sugar understood that small businesses are the backbone of the economy.  After his comments today, clearly not!

The vast majority of small businesses are owned by dedicated individuals, employing hard-working staff and providing high quality services & products.  The last thing these businesses need is to discouraged by the comments of the government appointed “business czar”.  He should have kept them to himself.

Martin

www.mymanagementaccountant.co.uk

Cash collection – don’t forget the basics

Many years ago I was being interviewed by a finance director for a role within his team.  Actually the role was to work closely with him, and set up & manage projects on his behalf.

Towards the end of a tough interview he surprised me with what I thought was a fairly simple question …… “what steps would I take to make sure we collected cash on time from our customers”

I headed straight into a fairly comprehensive answer:

• contact the customer and make sure they’d received the delivery, and all was ok – no damages, missing items etc
• if there are damages or missing items, deal with the matter promptly and raise a credit where needed
• make sure the sales records were kept up to date so that I don’t later waste time chasing invoices that had already been paid
• keep a file or record of outstanding invoices
• contact the customer a few days before the invoice due date to make sure payment was imminent
• set aside specific time to chase overdue invoices & keep records of all correspondence
• check to see if the customer is having difficulty paying
• if yes, could we organise a payment plan/do we need to stop future orders
• if non-payment continued, take the appropriate steps to collect the debt legally

I sat back and waited for the finance director to voice his praise for my answer and conclude the interview.

Instead he simply said “Would you send out an invoice?”  It seemed that within his team, someone was forgetting to do just that causing his business severe cash flow problems.

Sending out the invoice is the most important step in collecting cash, but unbelievably is often ignored or delayed by businesses.  Managing cash is already difficult enough, but why make the task harder and put the health of the business at risk?

I’ve taken that one interview question with me wherever I’ve worked, and I always ensure my clients aren’t missing out the vital step in collecting cash.

Always send out your invoices on time.  It makes your life so much easier!

Martin

www.mymanagementaccountant.co.uk