The rebuild of your business might seem like a daunting task. Our MD Richard Simms breaks it down into small, manageable steps using the Kitchen Table Guide. 

In this episode he looks at:

– Deciding which route to take for the rebuild of your business.

– How to use cash-flow to rebuild your business.

– Rebuild your business based on planned scenarios.

– The importance of being flexible as you rebuild your business.

‘Rebuild your business for a successful future’ transcript:

Welcome back. It’s Richard Simms here from FASimms & Partners. 

Thank you for joining us for part six, the last part of our Kitchen Table Business Guide. We’ll be chatting through the bare bones basically: the process which you can go through to deconstruct, reconstruct your business, look at where you want to get to. And again, to recap, we will look at Point A (where you are today) and Point B (where you want to get to). 

Okay, so we’re looking now at how we take our thought processes of this kitchen table in front of us – good bits, bad bits, bits in the middle. We’ve talked about the process you need to go through, to think about where we want to get to, what your Point B looks like. We’ve done a bit of analysis on Point A, always a lot of work for you to do. 

You’ve then got to basically say,’ right, how are we going to model these now? How do we make this new scenario, this Point B or the steps to get from A to B, how do we make them into something we can actually work with? How do we allow that to allow us to consider the viability of that?’ 

Because of course it’s all very well having great ideas and having thoughts about the process. But if you can’t actually cash-flow it, you can’t afford it, none of those things. 

So I mentioned in one of the previous podcasts about this need to consider your cash flow very closely. And the cash flow of course is the end result of a combination of your income expenditure, so your profit/loss accounts. In other words, what comes in, what goes out and that’s from an accounting perspective. 

Your balance sheets and what your assets are effectively your list of things you own and what you owe – those two bits there are your balance sheet. And then the cash flow links the two together. So it moves things between. For example, an asset could be stock on your balance sheet. That cash is there, that stock is sold, which creates money coming in as a byway of a book debt. The book debt then turns into cash, goes to the bank and you’re moving things around your balance sheet. 

Some things then relate to your profit & loss account, which might be, for example, that stock you bought for £8, you sell it for £60. So you’ve got that profit in that and your expenditure going back and forward in there. So you’ve got the two interactions of your balance sheet, your kind of overall everyday static position of the business. And your profit and loss, the moving part, what you sell, what profit you make from that side. The cash flow is a bit between the two. Okay? Your cash flow forecast is built from a combination of those two aspects to see what moves between the two.  

So if we’re going to model forward, let’s start by saying, “Okay, what does our profit & loss look like? What will it look like on a daily, weekly basis?” And then we can say, let’s say, if we forecast the profit & loss for a month. Let’s say we take an annual one…or whatever time frame you want to say. Let’s say, we’re going to forecast a six-month profit & loss account and we’re going to say, “Right each month we think we’re going to sell…? Month one. Month two. Month three. Month four. We’re going to map out each month what we’re going to sell.” Then we need to say, “Right, we know now what are the kinds of costs to sell that? What are the costs going to be to run the business? What is the cost going to be to run the business? What will the expenses be?”

We’re going to basically have a list down there of what comes in, what goes out. That will then be effected into your cash flow. Because you might sell something today. You might not get paid for three months. You might get paid in one month. In two months. You might be selling online so you get paid by the credit card company in two days. It always depends on what your structure is. So the lag between your cash flow and the money coming back in, money going out, the timeframe there is really important. 

Just keep this concept in mind. I just raised quickly as I’m going through it to give you an idea of this. We talked about cash flow in a very simple way. Now, many of you may or may not have come across rugby union. Well, it’s very popular in the UK. And if you’re playing rugby union, what can happen is as a player has a ball in their hand, they’re running along the ground at a great pace. And someone just catches the back of their heel. They can’t quite catch them to tackle them. They catch the back of their heel, which means that the player with the ball is running along and they’re effectively tripping them over.  Because this tap tackle has pushed one leg across behind the second one and they begin to fall down. I’ve got to say that it can sometimes be a slightly humorous 30-yard dash as the individual begins to fall over more and more and then eventually falls. 

Okay. You might think ‘what are you talking about Richard?’ Well, the point I’m talking about here is that that fall over in say 30 yards time is the symptom of a problem that started 30 yards before. In other words, when the person was tackled, the person was tap tackled, that’s the problem. The symptom is when they fall over. Your cash flow has got a time lag in it. Okay? So whatever you do, don’t forget this timeline between making a sale, taking action, something happening and the cash flow impact. 

So always be aware. And that will range across your business, across different businesses, but also across your different structure. So that time lag could be as simple as you have bought an item you’re paying for in 30-days time. So there’s this difference between your purchase point and your cash flow impact. It could be, for example, you’ve lost a customer and that customer doesn’t come back in. And the actual impact of the cash flow is two or three months later because that’s when you feel the lack of cash not coming from the customer you did have. 

So look at the elasticity between the point of transaction and the cash-flow impact. Very important to think about that. And that’s why it’s important and I wanted to put it in context. Because when you look at building your cash-flow forecast and modeling your scenarios, that’s what we’re talking about. It’s that elasticity between the transaction and the cash impact. Okay. Really important on that side. 

What we’re looking to do now is build up several scenarios. Because we can’t just create a single scenario and say, “That’s the first one. That’s the best one. That’s it. That was easy.” We have to have a number of scenarios. So quite a lot of accounting software systems have got cash-flow modeling in there, in the structure. If not, use a spreadsheet and create yourself a balance sheet, a very rough balance sheet, with asset liability effectively. Create yourself a profit & loss account sheet. Income expenditure. And then have the cash flow linking them all together. Or if you’re not particularly great on spreadsheets, just have a simple page that says ‘money comes in and it goes out’ or whatever you feel you want to do. But don’t make it hard work because there are tools out there that will do that for you and at not a great cost to you as well. So I think it’s important to have something like that in place to make it easier. Because if it’s on a document, it’s much easier for you to flex it, to change it, that elasticity to make those transactions take place further and close together. 

The easier your structure is, the more you’ve got it right, the easier it is to model it and change it, chop it around. Because then you can really say to yourself, right, if you think about modelling your Point B, you can make that model much easier can’t you. You can make that change much quicker. You can change things through, you can check it through. So think about that model, that model is really important for the structure. And you might’ve, as I’ve already said, we’ve talked about lots of different things you might choose to do. Whether it’s retraining staff, changing the way you take business forward, making the business more agile…whatever you want to do, you’ll have to work out the cash, at the end of the day. Because there’s no point having a business that doesn’t generate cash and doesn’t make a profit for you. So we need this model in place. 

This model we talk about here, you might use for 20 years as a basic principle, because actually the business might not change that much in that timeframe, who knows. But the point is by having this model in place, it will allow you not only to model your business, but run your business. And the more businesses I talk to, if I talk to a really efficient, effective business, this modeling, this cash-flow management is massively important to them. That’s how they make their business work so effectively. Very important aspect for you to do that

Okay. Then we’ve got to look at that and say, right, how do we then get our, kind of, what’s the next stage? Let’s do our models, let’s look at our structure, look at our cash flow and say, “What suits me best?” 

So your hope for the end of this process, you’ve now been through a root where you have broken your business down, you’ve assessed all the contents of your business, with the kitchen table review, you’ve then rebuilt your business in the way you want it to be. Okay. So you’ve got Scenario A where you are today, Scenario B, where you want to get to. 

Okay. Then you need to say to yourself ‘How long, how big is that change?’ We’re not talking about, in this particular episode, the steps you can take. But, and I talk to you as a business rescue professional I suppose, there are lots of really useful tools available to you. And when I say tools, legal tools, new opportunities, which we’ll pick up on separate podcasts later, the things you can do to help you transition from Point A to Point B.  

But the first thing to do is to establish what you think your Point A and point B are. This is what we talked you through now. You get yourself to the point where you can see where you stand today, and where you want to get to. You’ve got a situation in front of you, you’ve got some flexibility in how you model it, how you change it around. It might be if you’ve not already taken advice at this point, it’s now you might want to take some advice to see “what else can I do?” Or do some further reading, do some other research. Maybe you join us for some future podcasts to help you understand the steps you could follow to move from A to B in the most effective, most effective steps, most efficient steps, to allow your business to be what it wants to be going forward. Making sure it’s fit for purpose. 

Thanks ever so much for joining us for this series. I hope you join us for future podcasts. And thanks again.