Growing a business:
Understanding the financials
In order to grow the business effectively, you need a thorough understanding of the current position of the business and the implications of growth. Take, for example, two of our clients, both in the packaging business.
One client made two different types of packaging requiring two different production processes. The management information did not distinguish between the two types of packaging, so only the combined result had been reported to management. We conducted a review of the business and discovered that, whilst one type of packaging was very profitable, the other was loss making. As a result this company took the decision to close down the unprofitable production process and concentrate its resources on the profitable packaging, thereby improving total profit. |
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This decision could have been taken more quickly if the client had maintained more detailed financial information that analysed the operating results between the two processes.
Management accounts are covered in more detail in the Running a business section. Click here for more information.
Another client in the packaging industry bought in most of the board that it needed to manufacture containers, but also manufactured a small quantity of board for its own use. This company grew by investing in a new machine to make more board in-house. This both reduced its purchasing requirements and, since the company also sold the board, increased its turnover. The machine was very expensive and so, before it was bought, we helped our client in the following ways:- forecasting how the purchase would ultimately increase the profitability of the business
- estimating the cash requirement to cover the transitional period after the machine had been acquired and before it was making a full contribution to the business
- considering whether it was better to buy or lease the machine
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Where next?
Within How is your business performing...
Within Growing a business…
General...
