Growth: it’s the aim of most businesses, but why is it necessary? For most companies the reasons are similar. It might be a desire to diversify. It might be about providing ever-higher shareholder returns. For some companies, growth equals survival – their sectors are dynamic where small fish have a tendency to get eaten. For us, it’s about driving the Scottish Economy, seeing local businesses become more successful, providing better jobs and enhancing lives.
Whatever your reasons, you need to ask; how will I know this business is ready and able to become a bigger fish in a bigger bowl?
Before a business can grow, it needs to put the elements in place that permit and encourage growth. Without these crucial elements, businesses can’t know if they’re growing in the right direction, by the right amount, or at all.
So what is it that businesses need to grow? They need a strategy and a plan, but we’ll cover these in another post – there’s no end to how much we can tell you about strategy and planning. Before either of these, you need information; information you can trust, that you can base your plans and decisions on.
Every successful, growing business needs a clear view of how it’s performing and this is achieved by having robust and tailored management information covering the right information for your business and the growth plan you’ve devised. While every business has financial accounting in place, you’ll need management accounts to make your growth plans come alive.
Many business owners still don’t fully understand the difference between financial accounting and management accounting, but it can be explained quite simply. Financial accounting mainly serves external needs, satisfying compliance and legal responsibilities outside of the business, like HMRC tax and annual Companies House submissions.
The primary purpose of management accounting is to serve the business itself. It’s designed for internal use, providing foundations for stable growth and decision-making by making performance and progress visible and meaningful. With the help of a trusted partner like AMAS, you can evolve your management information to provide the budgets and tools you need to see the true reflection of your current position that you’ll need to make real-time decisions that support your ambitions.
Business owners traditionally see management accountancy as being about controlling costs, but it’s so much more. Management accountancy is about shaping the future of your company, providing vital information to allow you to make the right decisions to achieve your objectives.
If you’re off track, with the right information you can correct it. If you have a growth plan, you can see what progress you’re making and in what areas, but only if you have the right information, tailored to your plan.
Here’s an example. We work closely with a local chocolatier, and we helped them formulate a strategy and growth plan (which is working like a charm!). Before they were able to decide what growth was possible, they needed to understand in more detail exactly what each product costs to produce – to the penny. We worked with them and, taking their business model, costbase and capacity into consideration, we helped them calculate the exact unit cost for every product they produce, giving them a model they can use for future products too.
Why is that important? It’s important because without this information, it’s impossible to determine the effects of changing capacity or developing the supply chain. The profit margin on each item at trade and retail price wasn’t clear. It’s crystal clear now and they’re in a position to use the information to plan, to see what effect changes to the supply chain have, what effects capacity changes will have and how process improvements directly affect their bottom line.
They can push their marketing and sales activities, secure in the knowledge that the effects of new orders can be accommodated. It’s in the plan, and it’s costed. Now, together with grant, loan and bank funding packages that we formulated, they’re tasting the sweetness of their own success.
If you have aspirations to grow your business and you want to work with an expert partner that can evolve your management system and give you the information you need to deliver your growth plan, we’d love to hear from you. Call us today and we’ll help you take the first steps towards being a bigger fish in a bigger bowl.