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Perspective Property Sylists PDF Print E-mail

Industry: Property and Business Services logo-pps-25.jpg

"For any evolving business going through the inevitable growing pains of cash flow management and forecasting, I would highly recommend the professional services and expertise of BusinessNAV to help you through this essential part of maturity." 

Marc Conias, Managing Director

The Situation

Perspective Property Stylists (PPS) is a furniture hire and package sales company.  They have an exceptional reputation for quality as they deliver a high end product into property development displays, homes for sale and commercial property for lease to add life to an otherwise empty space.  The business has been operating since 2004 and has been doubling its turnover year upon year from inception. 

The business was reporting good profits, but the owners were complaining of cash flow constraints.

This small company was growing quickly and the systems supporting it were struggling to keep up.  The owners were in a situation where they could no longer rely on the accounting data they were being provided and it was arriving 3 weeks too late.  At a basic level it was vital they knew how much money was coming in, and what bills they needed to pay.    There wasn’t a clear position on stock levels and this was causing confusion when fulfilling orders. 

The owners needed a system for ensuring that they were going to have the cash when they needed it, and into the future.  To do this they firstly needed to be able to rely on their internal management accounts and they needed them soon after the end of each trading month. 

 

The Solution

There are 5 Financial Must Do’s for every business. The priority for PPS was to get the first three items right and then they could start concentrating on the last two effectively. 
1.    Cash Flow Structure
2.    Quality
3.    Timeliness
4.    Budgeting & Forecasting
5.    Decision Making

An initial application of BusinessNAV’s CashflowNAV Factor calculation quickly revealed PPS’s real Cash Flow Structure.  PPS’s negative CashflowNAV Factor meant that whilst the business was profitable, the impact of its working capital needs meant that increased sales actually took money out of the business.  Future projections of growth demonstrated that the company would not have been capable of sustaining the working capital funding which would have been necessary to achieve the owners’ continuing growth plans.

To get the Quality of PPS’s management accounts right required going through PPS’s balance sheet line by line to ensure each account could be supported and ‘reconciled’.  This process also served to simplify PPS’s profit & loss from 4 pages down to 2, and the balance sheet from 2 pages to 1.  

A key task for PPS from the ‘Quality’ must do was to get their inventory balance correct in their accounts.  This required a mid year stock take and implementation of rigorous process controls in the warehouse so items that were checked in and out were handled consistently and coded correctly.  It also required some reworking of the inventory system to match what was happening on the ground. The Quality of the data is maintained every month as part of an End-Of-Month Checklist system provided by BusinessNAV.

A reporting and meeting schedule was part of the End-Of-Month checklist and this was repeated each month.  This addressed the Timeliness of the accounts, as staff must deliver reports to management by the agreed dates.  Armed with this information the owners could now make informed Decisions on sales required, how much cash they needed to buy inventory and pay bills and whether they were making a profit each month.

The Business Result

To make matters all that more difficult, during this time the ‘global financial crisis’ hit.  The company’s sales dropped.  The focus for the owners turned to getting out and generating new sales channels.  They could do this knowing that their staff were addressing PPS’ financial management issues by implementing BusinessNAV systems.  

Within 4 months the management accounts went from being complex and unreliable and delivered 3 weeks too late to concise, accurate and reported on the third day of the month. The inventory system was consistent with the balance sheet and stock levels were managed more effectively, which was having a big impact on cash flow.

The owners for the first time in a long time had confidence in the management accounts and were sleeping soundly at night.  At the beginning of the year they were looking at negative cash flow returns. They have now turned that around 3 fold. 

“Forward forecasting was the last thing on my mind and not a priority at that stage” said Marc Conias. 

They now do have a well functioning business and are set to refocus their management efforts away from the day to day to strategic goals.  They will, for the first time, project 3-year budgets and set some high but achievable sales targets with the aim to continue exponential growth annually over the next 3 years.