finance

Is Holding Three Months’ Worth of Overheads enough to Mitigate the Small Business from Risk?

 in Guest Post  tagged business / cash flow / finance / financial coaching / forecast / Hayley Chiba / measure / money / overheads / risk management / sales projection

Finance is one aspect of running a coaching business. In today’s guest post finance expert Hayley Chiba shares some of her expertise of working with small business and entrepreneurs.

Is Holding Three Months’ Worth of Overheads enough to Mitigate the Small Business from Risk?

By Hayley Chiba

"Is Holding Three Months’ Worth of Overheads enough to Mitigate the Small Business from Risk?" by Hayley Chiba

Business coaches and consultants often advise a small business, to always aim to hold 3 months’ worth of their overhead costs. This is to mitigate the risk of some down turn in the business.

In fact, this could apply to any unforeseen event occurring, where this meant the business were unable to generate sufficient sales to cover their fixed costs.

As a business coach, overall this is a good metric to have, but I was recently asked this question by a business owner. He still didn’t feel assured and satisfied that he had risk covered. If a business coach is to provide a valuable metric to his business owner client maybe a fuller dialogue is needed. As we know, better discussions with our clients can often lead to longevity and trust from your clients, as it gives you the opportunity to demonstrate your deeper value to your clients.

The problem is, that using an arbitrary figure like this, does not really relate directly to the specific level of risk that the business is facing.

Using this measure is fine if it relates to a business with low growth. Also, if it has a foreseeable pipeline of sales and a good insight into future potential environmental factors which may affect the business.

Just concentrating on holding a reserve only buys time, actually 3 months in this case.  You need to consider, if there were an unforeseen event, how would that impact on the business financially?  An unforeseen event may be the loss of a major customer, change in law or perhaps the loss of a key employee. Having considered this, how long would the business need, to put in place an alternative plan? Furthermore, how long would it take for “business as usual” to resume?  This then leads us to think that we may need a much longer period of time, perhaps more like 6 months. As well as thinking about the amount of time the business needs to recover, we also want to consider if the business owner is actually looking to change something about the business.

Specifically, if they are thinking about undertaking a significant investment to grow the business. In this case the potential risk will rise as the return from the investment into growth activity is still to be proven.  Spending out on more investment for growth will, in the short term, lower the profit margins and available cash. This can feel daunting especially when the business owner realises their current healthy profit margin is going to be eroded and in fact with it, any cash reserves they have built up.

So, I always recommend that in this case, further projections should be made. This will give the business owner the peace of mind that eventually, he is going to see the results he is anticipating. More importantly though, having some sort of forecast of what he expects to happen and measuring against this, every month, will flag quickly to him, where the plans are not playing out the way he was expecting. This will give him sufficient time to look at this, think of the actions he needs to take and make the necessary adjustments to his action plans to try to bring his results back on track.

The key report required to help give visibility on whether the new investment is viable is the Cash Flow Forecast.

I always suggest starting with the current situation and financial shape. Hence at this point it is crucial you understand your current position in terms of some key components.

  1. What is the current Sales Projection based on hard data? We can all dream, but sales forecasts should be based on some credible extrapolation of the past or last year’s actual data achieved.
  2. What are the current profit margins and specifically what is the gross profit margin? Gross profit margin being sales less direct costs.
  3. What are the overheads and what is the average run rate for the overheads? Overheads will naturally fluctuate due to the timing of supplier invoices. Marketing, administration, repairs and travel are good examples of this type of spend. They reflect areas where the timing of spend is discretionary and not fixed as a monthly fee. Breaking out spend where there is some flexibility on when to spend, gives a view of what overheads are absolutely fixed and have to be covered month on month.

So, armed with these 3 areas of information, you should be fine now to create a time based cash flow forecast. Not you of course, the bookkeeper or the business owner himself!

This forecast should be drawn up as a monthly forecast, (or even weekly depending on the nature of the investment spend). Plot it forward until the point when you expect the business to be seeing the benefit from the investment. This is often longer than you realise. The cash flow forecast should show the benefits materialising, which take the business to the next level. Ensure that the forecast covers this full time span. Many business owners stop short of this point. They only project across the time of when the spend is actually taking place. You need to see what happens to the business shape post the spend. You want to see if and when the business shape returns or even improves versus its original shape. This will often result in a forecast for at least 1 to 2 years out.

Having created the forecast, the most crucial action is to measure against this monthly. Failure to do this, may mean that the forecast is not delivered. You will need a flag to alert where and when the business   moves off-track. Ensure that there is a consistent and methodical tracking of the key components of this cash flow forecast.

Planning and then measuring, will help to confirm if the growth investment decision was the right decision. Where it is proving not to be, this early warning flag should give sufficient time to plan how to mitigate these costs by stopping the things that are not working and reinvesting in other areas.

Protecting the business pot of cash is as important as building that pot of cash, whether it relates to 3, 6 or 12 months’ worth of overheads. If you can advise him fully by including these additional necessary steps where appropriate, you will ensure that the business owners hard earned cash is not eroded.

That’s something I’m sure he will certainly thank you for!

About Hayley Chiba

Hayley Chiba

 

Hayley Chiba is a qualified Financial Controller working with small businesses. She runs her own business, Better Numbers Limited, which provides one to one Financial consulting to £1m + growing businesses in the Bristol, UK area.

She also provides Financial coaching to Entrepreneurs, Home Business Owners and Start-ups via her Ecourses. She dedicated to helping small businesses grow through increasing their personal and business financial awareness.

 

 

Connect with Hayley via:

Website: www.betternumbers.co.uk

Faceboook: www.facebook.com/Betternumbers/

Twitter: @betternumbers1

Linkedin; uk.linkedin.com/in/hayleychiba

 

 

“Dear money, thank you for . . . .”

 in Guest Post  tagged belief / coach / finance / grateful / Helen Collier / money / thank you

In today’s guest post coach Helen Collier shares a personal thank you ….

“Dear money, thank you for . . . .” By Helen Collier

“Dear money, thank you for . . . .”

By Helen Collier

Yesterday, just before I sat down to write this blog post, a prompt dropped into my inbox. It asked ‘If you were to write a thank you letter to money what would you say?’

What an intriguing question. What would I say? Would it be like one of those countless letters I wrote to my aunts thanking them for the talcum powder, done out of duty rather than real appreciation? What on earth would I say to money if I was thanking it. Here’s what I said:

Dear Money

I’m writing this to say thank you for all the great gifts you’ve given me over the years.

I can’t remember you at all for the first few years of my life. You must have been there, no matter how much or how little.

Then the memories start to return.

In my early years there wasn’t a lot of you around. I’m not sure at what point I began to notice this. The people around me all seemed to have the same amount of money. Or did they? There was a fear in the background. (How will we manage? You’ve not paid your stamp! I do my best! There’s a baby on the way.)

All hazy thoughts of the messages that seemed to relate to you. But what were you doing? You were just there. Sometimes more of you (my horse has come in), sometimes less of you (there’s never enough). And here I am.

I have such lovely memories of you. You bought us treats on Saturday night. It was amazing what we could get for 5 shillings (25p) to satisfy the sweet tooth of 5 children and 2 adults. Walnut whip, sherbet lemons, pear drops, chocolate éclairs. You were always there for those Saturday Nights. Thanks for the memories and the tastes.

You felt wonderful as someone passed a piece of you to me on that Whit Sunday Walk. I pushed you into the palm of my hand inside my glove. As the walk continued my glove filled up with money.

I can feel it now. Too much money for a little girl to hold in her hand alone.

When did I realise I could trade you for an Ice Cream and that it could taste so good? When did I move from saying to the second person that gave me a coin,

‘It’s all right I’ve got one already’(how sweet),

to getting really excited and wondering when I’d get the next one, in anticipation of that ice cream? (How greedy) Was it you that was different or was it me as I learned my money dance? Money gets you things (shouldn’t want things). Money, you were just there, sometimes less of you sometimes more of you. Thank you for the delicious ice cream!

The way you slipped into the little charity envelopes, one coin into each of the seven pockets. I loved the feel (money’s tight, there’s not enough). But there you were and there was I and this was helping the children of Africa (good girl).

Thank you money for simply feeling so lovely and snug in those envelope pockets.

In teenage years I began to see that some people had more than others (There’s those that have and those that don’t. We don’t. Can’t change it. That’s how it is. Mustn’t want things, Make do, Must pay your way).

Such shame that I had a second hand uniform. Such shame that I felt shame that I had a second hand uniform (What about the children in Africa?). Such shame that children in Africa didn’t even have a school uniform. Where were you then? You were there, and I was there, and the children in Africa were there.

Do you know money, I need to say a heartfelt thank you for being there in my life – no matter how much, no matter how little, no matter what.

On my way to financial independence, saving for my first ‘grown up’ holiday. One envelope for each expense. One for the travel, one for the B and B, one for spending, one for food. Sixteen by now and I still loved the play part of money. The ordering it, sorting it, anticipation of something good to come. Pride that I was earning and saving it myself. Yet more experiences and learning. Thank you money.

That was the early years and then I got big! It was harder to see you as simply being there. It was easier to adsorb the messages that surrounded you.

People like us don’t have money. If you have money you’re not like us. The only way a working man can get any money is a win on the pools. You have to work hard for your money.

A confusion of messages

Do well. I want more for you. Work to be worthy. Don’t accept gifts of money. Don’t deserve it. If you’ve got money then you’re not us.

More guilt, more shame, more battles, more rebellion. Where were you money? You were just there in different amounts in different places. Thank you money for being there in my life.

In the last few years I’ve been doing more learning and leaning on you. Thank you for being there to support me. There’s still lots to disentangle and I’m seeing more and more that you are simply there as people weave their stories around you. I’m seeing you as a money maypole around which we all dance. With different levels of money, skill, knowledge, understanding, emotion and awareness. Hence the knots, clumps and tangles. Our practical, emotional and spiritual messes around the maypole money.

You’ve been caught and tied up by my mind, my heart and my soul. You’ve tolerated the distortions I’ve woven around you. Thank you for being there no matter how much, no matter how little.

Thank you for continuing to let me dismantle the knots I’ve tied around you so that you can take up your rightful place in my life, no more, no less. Just there.

Helen

X

The prompt came from me! It is one of my ‘Money Prompts to your Inbox’ series. I wasn’t expecting it to land just at that moment! There it was right in front of me, it just seemed right and ripe for this blog.

Writing that letter, this week, showed me just what progress I have made personally in getting money into its rightful place in my life, no more, no less.

As a money coach I help clients explore their relationship with money so they too can begin to untie the knots they’ve created around money and give money its rightful place, no more, no less.

So, use it how you will and maybe write that letter yourself. I’d love to hear about it.

About Helen Collier

Helen Collier is a money coach working with clients around money issues, focusing on relationship and money. She trained with the Money Coaching Institute in California. Helen developed Harmoney as a direct response to her growing disquiet that something was out of balance in the financial world. She set an intention to play her part by supporting people to put money in its rightful place in their lives, no more, no less. Helen writes a weekly column for the Yorkshire Evening News and blogs regularly.

If you want to get free prompts to your inbox for the next month sign up here

You can follow Helen on:

Twitter: www.twitter.com/harmoneylife

Facebook: www.facebook.com/harmoneylife

Linked In: https://www.linkedin.com/in/helencollier

Website: www.harmoneylife.co.uk

 

 

If money was your lover how would you describe your relationship? 2

 in Guest Post  tagged clients / emotion / finance / Harmoney life / Helen Collier / money / money coach

In today’s guest post money coach Helen Collier shares some of her experience and knowledge on a topic that can be a stumbling block for coaches (and their clients):

"If money was your lover how would you describe your relationship?" A guest post By Helen Collier

If money was your lover how would you describe your relationship?

By Helen Collier

I often ask groups this question. It usually causes embarrassed laughter. Then responses start to come. Delivered boldly or as aside mutterings,

  • ‘In separate rooms’,
  • ‘Solid’
  • ‘Divorced’
  • ‘Tense’
  • ‘Comfortable’

and so they go on.

We all have a relationship with money which others may puzzle over, criticise or admire. Some of us have more money than others. Some of us spend what we haven’t got. Some of us hoard and refuse to spend even on the essentials.

Money and emotions run deep

Recently I heard Sir Bob Geldorf describing a time in his life when he had very little money and although he is now a successful, wealthy business man he said ‘I can’t escape the panic that I’m back there’

It’s not unusual for me to meet people who say

  • “I earn loads of money and I’m broke”
  • “I thought I was doing all the right things and I know the universe will provide but the money isn’t coming, what am I doing wrong?”
  • “I just hate spending money, I get a dreadful feeling in the pit of my stomach”

Beneath these statements lay deeper feelings and emotions, often rooted somewhere in earlier experiences.

We all have a personal money story which charts the way money has shown up throughout our lives. As children we learn lessons about money. Quite often many of the lessons aren’t about anything anyone directly set out to teach us. When we are very young we are powerless to have much influence over what happens in our family around money. We make our own sense of what can be a very confusing and contradictory world and we can carry that sense on into our adult lives.

My mentor Deborah Price of the Money Coaching Institute would say that Money is a core survival issue. Woven into the fabric of that £10 note in our purses and wallets are a myriad of beliefs, emotions and reactions which far out weigh the actual monetary value. Am I worth it? Is there enough? Am I enough?

It’s my view that not enough of us have taken the time to really look at money and how it shows up in our lives.

So let’s start now and share some thoughts on this blog.

Here’s that question again and a few more

If money was your lover how would you describe your relationship?

As coaches what sort of issues arise for your clients around money?

How grounded do you feel in relation to money?

What work have you done on your own issues around money, so you’re in a clearer and cleaner place to support your clients?

About Helen Collier

My work as a money coach grew from a growing disquiet before the financial crisis that there was something amiss in the world of money and it wasn’t just £’s and pence. Seeing what was happening in the financial world, a growing reliance on credit and a sense that we could have everything now left me feeling uncomfortable and led me to explore more about the emotional side of money. I trained with the Money Coaching Institute in California to become an accredited money coach. I now work with clients from the inside out, facilitating an understanding of how their past is showing up in their present and, armed with that knowledge, coaching them as they transform their money lives. If you want to contact me click here

Connect with Helen via:

Twitter: https://twitter.com/HarmoneyLife

Linked in:uk.linkedin.com/in/helencollier/

Facebook: https://www.facebook.com/pages/Harmoney/324194636947?fref=ts

Access one of Helen’s free webinars on Money Types at http://www.survivedandthrived.com/Money-Quiz/