March 28, 2024 • 26 mins
Join us in an enlightening episode of the Profit Cash Growth Podcast, where in the news we dissect the success behind the UK multi-channel retail titan, Next PLC. Uncover their growth strategies, acquisitions, and prolific online approach that are projected to propel them past the £1 billion annual profit margin. Discover how this influential retail multinational leverages the strength of numbers innovatively and effectively.
In this week's deep dive, we journey into the underrated cornerstone of any successful business - management accounts. Co-host and chartered management accountant, Claire, shares her knowledge by explaining the what, why, and how of management accounts. Grasp the nuanced differences between management accounts and annual accounts, the magic of customisation, and their role in providing businesses with highly intuitive cost and revenue analytics.
We also provide a comprehensive guide on customizing management accounts to suit the needs of your business, irrespective of whether you utilise QuickBooks, Xero, or Sage. Determine if a bookkeeper or a chartered management accountant would best serve your business customisation needs. Delve into understanding your cash flow, P&L, and KPI reports, and how these reports can direct your focus to critical business aspects.
Concluding in Profit Cash Growth Extra with an exciting revelation about an underutilised tool in the iPhone's notes application, this episode promises to be an insightful exploration of management accounts. Whether you are a business owner or an accountant, this episode pledges to equip you with key insights necessary for efficient business management.
The Profit Cash Growth Assessment https://profit-cash-growth-pg9maszv.scoreapp.com
https://www.youtube.com/@ProfitCashGrowth
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If you think your business could benefit from management accounts and a monthly commentary from an experienced Finance Director why not try it half price for the first 3 months. Contact claire@profitcashgrowth.com
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Welcome to the Profit Cash Growth Podcast. This is the podcast for six and seven
figure business owners who are looking to grow a financially successful business.
My co-host Claire Hancock is a finance director, chartered accountant and entrepreneur.
And every week I'll be exploring guidance and frameworks designed to help you
increase your profits, improve your cash flow and grow your business.
This week on the podcast, why next we're about to breach the £1 billion annual
(00:24):
profit mark, why it's so, so important to know the numbers in your business
and the little known thing you didn't know about the notes application on your iPhone.
So this week we've got a jam-packed podcast and we've just come back from a
little short trip to Italy to Naples which was most delightful wasn't it Claire?
Well other than the food poisoning. No a bit of last minute food poisoning.
(00:47):
All good but we are fighting fighting fit again. I feel like this is becoming
the podcast of the the couple that are just ill all the time.
You know we'll we'll crack on through and let's start with this week's news
news story that's caught my eye.
So this week in the news, I want to talk about Next. The headline is a new era
(01:09):
for Next as it targets £1 billion in annual profit.
So this year, they've posted full year profits of £918 million,
and they have big ambitions to cross that £1 billion in annual profit.
But how are they doing it, Claire? What do you think? Have you had a read of the article?
School yeah I think there's probably I do
(01:29):
have a little bit of an enjoyment of reading the annual statements
that these big PRCs release the next one
I think it's about 150 pages long so it's probably not reading unless
you are a particularly dull person like I am and really appreciate these numbers
but they I think it's fair to say that actually most of next growth is coming
from outside the UK and also from online sales their retail footfall is actually
(01:52):
down and I think I I know we have some other retail businesses that listen to this podcast,
actually, and I know they're struggling with a similar thing,
that generally retail is just so massively influenced by the weather in the
UK now and the weather is becoming so unpredictable,
that really it's becoming incredibly difficult to run a retail store these days.
So, yeah, most of next growth is coming from online sales.
(02:15):
Brilliant. And they've got such an amazingly joined-up online-slash-physical strategy.
The article talks about, and I think I would agree with this, how they have
one of the best understanding in the market how to
execute an online strategy to drive sales through
their physical retail stores in total they've got 458 shops
which is not a huge huge number so you know they're not
(02:36):
going through that big shops yes and they've got a lot of home homeware stuff
as well involved in that one of the big areas is i don't know whether you'd
call this diversification or additional product lines but they've actually bought
stakes in other the clothing brands and they include Fat Face, Reese, Jewels, and,
Yeah. And actually, this is one of the reasons why their profitability has increased
(02:58):
so much, because they have made some quite significant acquisitions over the last few years.
And when they do that, you know, of course, overnight, their turnover increases,
but they have been very, very effective at cost control. It's one of the things
that NextSite is like their superpower.
Repeatedly, they say they have incredibly stringent financial controls and they're
(03:19):
very good at cost control.
They have a platform they refer to as TP and it's kind of like they're fully
integrated one-stop shop of everything that a retail business would need.
So when they buy somebody like Fat Face or Reese, they expect to be able to
just slot that business, their website, their e-commerce, their financial system,
their warehousing system.
(03:39):
Everything just needs to slot into this TP system.
And that is one of the criteria that they're saying is whether they will or
won't buy a company is whether it will work on TP or not.
And that is one of the reasons why they get so many synergies and cost savings
from making these acquisitions.
Amazing i think they just sound like and always have sounded
like an organization that just really got themselves
(04:01):
together in terms of their strategy and the way they want to execute it yeah
absolutely another big thing that they've done over the last
couple of years as well since 2017 is they their strategy they're quite open
saying in 2017 their strategy just stopped working their sales were declining
footfall was declining both online and in and in shop so they kind of had a
bit of a rethink as to what they were doing and they doubled down on the things
(04:23):
that were working They looked at their numbers,
they doubled down on the things that were working, and that's why they've continued
to have growth on to 2024.
But quite interestingly, when you look through their annual report,
it's a massive cost saving that they're citing from being able to renegotiate
their rental contracts with their landlords.
They show the before and after renegotiation. And one of the key metrics that
(04:45):
they track is with having 500-odd stores in the UK, they track the minimum renegotiation
period that they have for their stores.
They do that on average and that's four and a half years so that's still
quite a long time but I guess in the world of next PLC
it's not that long but it's definitely a top tip for small businesses to
think about when you're signing a lease contract is you want to make sure that
(05:05):
you've got these things in called break clauses which give you
an opportunity to get out of the contract if you don't want to be in it maybe
you want to shut your business or probably more likely your business is expanding
perhaps you need a bigger premises or you just want to renegotiate with your
landlord because you don't think you've got a good deal a break clause is a
really great great way to do that and that's something that NextSites has been
its reason that it's been able to control costs so well when costs have been increasing so much.
(05:29):
Yeah, I mean, they can clearly execute long-term strategies very, very well.
I mean, we talked on this podcast about, just a few weeks ago,
about the body shop and the trouble they've had.
What do you think about the fact that their CEO's just been there and he's had longevity for so long?
I think he's been there near on 20 years now. He's Lord Wolfson.
Do you think that's part of why a company can execute such a long-term strategy?
(05:50):
You know my views, because this is one I share with politicians.
Of being in and out like a revolving door and never really been able to deliver anything.
Thing i'm a big believer in you know long-term leadership
it's an interesting one because normally i
think you're looking at these plcs and they've got i don't
want to be rude when i say this but they've got probably men in
their 50s or 60s sitting in these board positions but i think
(06:13):
this simon walson he came in when he was i think like
quite young yeah 27 like really really young and
he's been there for 20 years so he's still quite quite young
in terms of ceos of these sort big blue chip
companies and i think that's definitely helped because yeah
i'm just i'm not i'm not sure where i sit with this one
in terms of whether it's a good thing for a revolving door of ceos
(06:35):
or longevity because i do think that you
know after about five years or so i think most
people tend to get a bit stale oh you know a fresh impetus that
comes in i wouldn't disagree with that there's two sides of this
coin isn't there there's the there's something about a fresh pair of eyes
and there's something about you know people often say within five years
a ceo can can execute the vision it wanted to execute it's probably time
(06:55):
to move on to the next thing but equally this guy's a seriously smart
guy i mean this is 20 years of working on
this i mean just put some real context around this which absolutely blows
my mind because i remember this story from when i was a kid is i think my my
family talked about buying shares in next i must yeah 20 years ago and i distinctly
(07:16):
remember them being about two pound 50 a share and i remember my mom turning
turning around and saying, this isn't going to continue.
This is, this has just gone up so much. It just can't possibly continue.
And I remember saying at the time, you know, these have just gone up and up
and up because they've gone up from 50 pence to £2.50 over the last 10,
15 years. And she said, they just can't go any further.
They're just a success story that can't possibly continue and never bought them.
(07:40):
And today the share price is £90, you know, a mere 20 years on.
£2.50 to £90, that's 3,600% more.
Than they were that day. And my mum said these couldn't possibly continue because
they were on such a bull run.
And I just think it's an example where this is a company that's been on a 40-year
bull run. I mean, you know, they do exist and it's tremendous.
And they're talking now about going from that £918 million to £1 billion,
(08:04):
going overseas and, you know, are we going to look at this £90 share price now
and it's going to be £1,000 in 20 years' time and we're going to regret not
putting the money in now, you know?
The thing with Next is that when you're a listed company,
so you're on the stock exchange, change you have to release quarterly statements
and say what you're predicting your results to be and things like that and
next famously are always very very conservative with their
(08:26):
results and they always under a
promise and over deliver that's historically been what people
expect of next but i mean their growth is definitely
slowing i think there will be
a change of ceo at some point i do think that you're
right that having a stable ceo for a long time can sometimes
times have benefits when that is a good ceo because it's the
(08:47):
difference between a ceo coming in expecting to only be there
for sort of three to five years they make short-term decisions based on
cutting significant costs making short-term profits
whereas this simon guy has been there for
a long time has been able to make the right long-term decisions but has this
i love this simon guy he's a lord but this simon guy lord wolfson he is probably
(09:11):
coming to the end of the fruitfulness as some of his decisions that he made, you know, back in 2020,
I think, sorry, 2000 was a pivotal moment for Next because they were one of
the very first companies ever to promise next day delivery.
Everybody thinks it was Amazon that was the trailblazer when it came to next
day delivery, but it was actually Next that very first introduced this back in 2000.
(09:32):
So they've had, you know, nearly 25 years of the benefits of being ahead of
their peers, but their peers are catching up now. And I think that's the problem.
What next for Next? Yeah, especially with the likes of Temu and Xi'an and these
Chinese organisations selling direct to consumer, cutting the import taxes out of the loop.
(09:52):
It's a big issue for a lot of those type of companies. Yeah,
but it's a bit of a demographic, you know, Next is probably like the mum market
and older and Temu and Xi'an and companies like this, they are targeting teens and fast fashion.
So I can't imagine that that's causing too much of a headache for Next.
Yeah, for sure it will be taking some of their market share. Mr.
(10:13):
Wolfson is worried about it because he's campaigning against it.
Well, I don't know. I do think that maybe we should. That is one of the benefits
of Donald Trump is that he thinks that they should all be banned in America
and people should be buying American products first.
Indeed. Talking of Donald Trump, that was nearly my news story this week about
his new social media company.
But we won't go into that and let's move on to this week's Deep Dive.
(10:37):
So this week in our deep dive, know your numbers, why it is so,
so, so important, in fact, imperative in business to know your numbers and know them well.
And we're talking today about management accounts, aren't we, Claire?
Yes, management accounts is my superpower.
I am a chartered management accountant. So there are different types of accountants.
(10:59):
There are some that specialise in like your year end statutory accounts and your tax returns.
And then there are people like me who study with With CIMA, that's C-I-M-A,
and we specialise in management accounts, which are accounts that are used internally
by the business to drive business performance.
Absolutely. And I'll say this from the off now,
if anybody's listened to this podcast and turns over £20,000 or more and does
(11:24):
not get a set of accounts every single month, which they're able to look at
and understand how their business is performing on a line by line detail,
then they are doing something wrong straight from the off.
You do not run a business from annual accounts.
They're very different. Why are they different, Claire? What is the difference
between management accounts and annual accounts that a lot of business owners will be aware of?
Well, the main, the most significant difference is the frequency.
(11:47):
So your management accounts you would be looking at, normally you'd be looking
at monthly, but in, you know, I've worked in big blue chip organisations where
we're doing what we would call a flash account and we're literally doing it weekly.
We're keeping on top of our costs and our performance on a weekly basis.
So most businesses though need monthly, and I I'd say if you're a really,
really small business, I'd say maybe like sub 50k or even 100k,
(12:09):
you could probably get away with doing it quarterly.
But best practice is absolutely monthly for management accounts.
So that's the most significant difference.
But aside from the frequency, the biggest difference with your statutory accounts
is that there is actually a legal way that you have to publish your accounts.
So these are the accounts that go onto Companies House and are publicly searchable.
And there is a legal format for that.
(12:29):
And therefore, every business, no matter what their size, every small business
has exactly the same format.
Every small business has exactly the same structure exactly
the same cost base exactly the same performance metrics
that matter to it and that's where your management accounts come
in because your management account should be in the format
that is the most helpful for the business it should
(12:51):
be the most helpful for understanding what is and isn't working and it
should be the most helpful for understanding where your attention
needs to be focused so using the legal statutory
format will not enable you to do that
yeah and actually management accounts are highly customizable
aren't they Claire so you know you know
if you specifically want to drill down and analyze a certain
(13:13):
cost base or a certain revenue line you can start to
post those costs and revenues specifically on that line and then
track them month after month year after year and
it becomes incredibly invaluable really just talk
to us a bit about that sort of customization that you know
you know I like a lot of GL lines or what is a GL line for
people that I like a lot some people like less and you
know that's the great thing about it yeah so GL line it
(13:35):
means general ledger or actually in a lot of the online software
packages is probably called a nominal code or an account code and
that just means when you're putting your invoices onto your system
maybe you've got sage or zero clear books quick books any of those you have
to code it somewhere you have to say what that expense is for so you might say
it's travel expenses or you might say it's marketing so what you do is you group
(13:55):
all of your invoices into these nominal codes and then you group the nominal
codes into into management account categories and that's how you build your your P&L up.
One of my top tips that I would give is that, you know, as with annual statutory
accounts where I said that they have a certain legal format,
when you, for example, sign up to Xero or QuickBooks or Sage or anything like
(14:16):
that, they also just have this out-the-box format that,
will work for most businesses, but is not necessarily tailored to your business.
And it's so incredibly important that you tailor your management accounts to
what your business needs, because that's how you get the most value out of them.
So you can change the format of your P&L, or your balance sheet,
your cash flow, whatever it is that you're looking at, you can completely customise
(14:38):
that to your requirements.
So just because it's out the box in Xero, and that's what Xero says,
doesn't mean that you necessarily have to have that format.
So speak to Xero, speak to your bookkeeper, your accountant,
whoever it is that's managing that Xero software or QuickBooks,
Sage, whatever you're using, because they can customize your management accounts
and really make it most helpful and most easy to use.
(14:58):
Great. So who should be producing these management accounts?
Should it be me or as the business owner or the accountant or somebody else?
So the first, there's probably three ways that a business can go about getting management accounts.
The first one is to simply run your reports out of your own bookkeeping software.
So, So, you know, I've mentioned Xero, Sage, QuickBooks, all of those,
(15:20):
your bookkeeping software.
You can go on and you can run a profit and loss or you can run a balance sheet
or a cash flow statement from those systems.
So that's probably the basic thing that you can do.
The reason why I put that as the basic is because you tend to have the out-the-box, non-customized.
And really what you want is...
(15:41):
You want your bookkeeper, ideally, the next sort of what I'd say the silver
standard would be that you would have a bookkeeper, you know,
maybe run those reports for you, have a look over them, maybe add some comments onto them for you.
That should be the minimum that you're getting if you're paying a bookkeeper
or somebody like that to do your management account.
So I would expect a customised report that's got some commentary in and explains
(16:04):
where your attention needs to be focused.
Now, if you're going for the absolute gold standard, that's where you come and
you use is a specialist like me, who's a charter management accountant,
has got plenty of experience and is sort of the only thing that I do is this.
And we produce a completely tailored report for your business and it's all interlinked.
So you'll have a profit and loss, you'll have a balance sheet,
(16:25):
you'll have a cash flow, you'll have KPI report and all of these will have commentary on.
So you'll still get your full P&L from us. So you can understand your income,
your expenses, is your profit but more importantly what
we're doing is we're highlighting exactly what you need
to pay attention to because there might be 40 50 lines on your
profit and loss and you don't need to look at all of them where does your attention as a
(16:46):
business owner need focusing and what actions do you need to take what things
do you need to be aware of where are your trends moving what costs
are going up what costs are going down and what we think the
knock-on impact of that would be so you've got three options
you've got bronze which would be just running yourself out of your out of
your online bookkeeping software you've got silver which would be
to ask your bookkeeper to do it for you and then you've got
the gold standard which would be to come and work with a company like profit
(17:09):
cash growth yeah so would all if if i go to my bookkeeper and ask them to do
my management accounts and just you know report on it once a month would all
bookkeepers know what what i was on about and it would be that that easy or
no i mean unfortunately it's one of the,
i don't want to be you know disrespectful to bookkeepers because they're very
skilled people but they're skilled in bookkeeping and that is the posting of
(17:31):
the day-to-day transactions so posting your invoices, doing your bank reconciliations,
maybe doing your payroll VAT returns things like that. The.
I did a qualification. It took me four or five years to become fully qualified
just in management accounts.
So from that perspective, the bookkeeping qualifications out there,
they might have one module, which is normally optional and is normally about
(17:53):
12 to 16 hours of study on management accounts.
So that gives you an idea of the difference in skill level.
I think if you're a small business that's turning over low six figures or five
figure turnover, you could probably get away with using your bookkeeper.
But certainly when you're getting over four to five hundred K turnover,
I would really question whether your bookkeeper is providing you with the information
(18:15):
that you need to run your business.
And if your bookkeeper isn't, then you need to make sure that you've got the
skill set to fill that gap.
Well, I guess at that point, it's not just about getting a set of management
accounts because most business owners would probably say they didn't go into
business because they're great with numbers and accounts. They went into it
because they're a great salesperson or they want to deal with customers.
And actually, you know, unlocking the understanding of those accounts is where
(18:37):
the real value actually comes.
And, you know, if you were a big enough business, you'd have a full-time finance
manager or whoever that is, accountant, in your business doing that for you. Yeah.
You know, you don't do that until you reach a certain size. There is a hybrid, isn't there?
And that middle ground is probably, you know, getting the management accounts
with a good commentary with it, with somebody who's can, you know,
with fresh bow eyes, look at your business every month and guide you through that. Yeah. Yeah.
(18:59):
It's really interesting. Actually, there's a post on my Facebook page this week,
and it's a business that I'm working with.
And when you have experience like me of just working with numbers constantly.
And there's an art form to taking a
number and displaying it so that it paints a picture and we
took a business's last I think it was like this last six years worth
(19:20):
of sales and we split it quarterly and we
said okay look at the this business had you know almost
doubled its turnover in the last six years but all of that growth
had come in in like quarter two and quarter three and quarter
one had been completely stagnant there was zero growth in
quarter one at all and the business owner when I
sat down and sort of presented this the business owner and he said
oh well it's because of x y and we've got new customers and
(19:42):
they don't work in these industries there are summer businesses and i was like i
fully understand all of that i i understand the business reasons behind it
are you aware that the implications of this means that
you've got underutilized assets in q1
you've got underutilized staff so you've literally got staff
sitting around being paid to do nothing and you've got assets sitting around.
Not being utilized and you're turning business away
(20:04):
in q2 and q3 because you're at full capacity
and also you're going to have cash flow issues so
all of these when you know how to skew a number and
how to present it in the right way it becomes incredibly valuable
so out of that the most important thing with your
management accounts is that you then say okay so what action do we
need to take to drive this number in the right direction and it
(20:25):
was we now need to target customers in non-summer based
industries well i guess they're called management accounts for a reason and
that's either their accounts for the management or their accounts to help you
manage and yes actually they're both they're both and you've got a question
how you can sustainably and accurately manage your business without those accounts
they are the absolute blueprint that is driving the business.
(20:46):
Yeah, 100%. Your management accounts, if they are delivered to you in the right
way, your management accounts tell you exactly what is and isn't working in your business.
So you know what isn't working and you need to fix it.
And you know what is working and you need to 10x it. You need to do more of
that stuff that is working.
And it covers absolutely everything from your sales and marketing to your most
profitable products to even your most profitable or efficient employees.
(21:10):
You can normally tell all of this information when you know how to to understand the
numbers do you know when you really love management accounts is
when you are so eager to get your hands on it you'll
know this from from doing my accounts for
my businesses claire that i am chasing like day four
day five of the month like when will the accounts be ready when will
they be ready because i'm just desperate to look at the pnl and just analyze
(21:30):
it and understand where i am for me that for me it's
part of the reward of being in business the fact that
i can see the results or the fruits of my labor
for that month and it keeps me going month month after month after
month to see that growth and you know because I you know
I do want to grow and I think I it
just baffles me when I talk to be baffles me
the size of some of the businesses that I talk to I talked
(21:53):
to one the other week that turns over 1.8 million pounds and only has annual
accounts yeah it's it's you're almost you're leaving it to chance if you get
that big and you don't know how much profit you're making you don't know what
your overheads are and therefore what your break-even point is you don't know
how much gross margin you're making you don't know if if you can afford a new employee,
you don't know if you can afford that more expensive IT system.
(22:13):
It's just, it's baffling to me that businesses get to this size because it's
not even that expensive.
You know, to come and work with a business like me.
You're talking like hundreds of pounds a month it's not it's not
significant sums in the grand scheme of things
and in a year you should easily get that
money back in increased profitability in a business i think these things
(22:33):
pay for themselves almost instantaneously they're so valuable they
they are absolute must-haves in businesses if you're a serious
business owner and you want to run your business seriously and i
think that when i was talking about sort of bronze silver gold you know
you get your bookkeepers and they are capable of producing
a set of management accounts for you and sending it to you but it's that what actions
as a business owner do you need to take to get your business
(22:55):
either back on track so it is performing how you want it to
to perform or to capitalize on that
good performance and and continue that across your business and i think that's
where the difference between a specialist like myself and a bookkeeper is that
my job then becomes okay it's a given that you're going to get really good financial
information but the value that you get from a specialist like me is actually
(23:15):
from helping helping you to drive those numbers.
So we're not looking and saying this was the performance. We're looking and
saying this was the performance.
Where are we going to be next month and how do we make sure we get there? Yeah.
I mean, there's a reason why in big business, the chief financial officer is
the second highest paid person after the CEO, because those guys are the ones
that drive the business from the numbers.
A hundred percent. I mean, you, you know, good CFOs are multi six figure salaries now.
(23:40):
So, and, and that's not in a blue ship company. That's just in a,
you know a local local company you know we're
we're near Milton Keynes and Milton Keynes CFOs FDs 100
150k salary plus bonus car benefits they're very very expensive and you know
you can't hold down a job like that if you don't deliver value that's the reality
so if you don't have monthly management accounts do it do it now do not procrastinate
(24:04):
one more minute and let's move on to this week's profit cash growth extra.
So in this week's Profit Cash Growth Extra, I have got a nifty little tool,
which I think the majority of people will already have, but not even know they have.
And it's been a game changer for me. And it's the scanner function within the
(24:25):
notes application on iPhone.
So that's that little yellow notes pad looking application on the iPhone.
If you go into the app and you You open a new note.
There's a little tab that says, I think you click on the camera and you click scan documents.
(24:45):
And you can simply scan page after page after page.
So I'm actually trying to do this as Simon speaks because even I don't know about this.
But I don't even have the notes app on my iPhone anymore. I've deleted it because
I never use it. So what do I need to do? Because you didn't know how much value this had.
I need to download the notes app.
Yeah, the notes app is great. and you can literally i
(25:05):
mean i use it for signing contracts and literally
everything because you know we've got a we've got one of those big great big
scanners in the office but it's just a hassle you know
now i can just print stuff up at home print it off wherever i am scan it
you scan page after page after page and it links all the documents into
one pdf so you can literally scan a 30
page contract and you literally you scan it using the
(25:26):
camera on your phone it scans it in you know more than
adequate quality for well certainly more
than adequate quality i use it for contracts for solicitors for property purchasing
and always acceptable and i just
use it just to scan and save everything digitally that i've got
so you know if i have a bit of paper come through the door in the post i just
scan it stick it in google drive and save it it's an absolute sort of game changer
(25:49):
because it's all automatic in the way that it works and honestly if you if you
haven't found it check it out it will literally change your life of course you
you can pay for one of the scanner apps that are out there.
You know, they cost a couple of quid a month and they probably do the same thing.
But this is all free. It's all integrated into your iPhone under the Notes app.
So that's it for another week's podcast. We'll be back next week to go through
(26:11):
some more news stories and some more juicy deep dives.
In the meantime, if you did want to check out Profit Cash Growth,
you can go to the website, ProfitCashGrowth.com.
You can go to the Facebook page, the Instagram.
Yeah, just drop me an email. Also, we have a special offer at the moment,
actually, for any businesses that are interested in management accounts you can
get 50 off your first three months worth of management accounts
(26:31):
if you want to work with me and the team and
get your management accounts and improve your business and drive your performance
so yeah drop me an email at claire at profitcashgrowth.com or info at profitcashgrowth.com
and um yeah just quote the profit cash growth podcast and that offer is valid
until the end of may excellent lovely we'll see you all again next week.
Welcome to the Profit Cash Growth Podcast. This is the podcast for six and seven
figure business owners who are looking to grow a financially successful business.
My co-host Claire Hancock is a finance director, chartered accountant and entrepreneur.
And every week I'll be exploring guidance and frameworks designed to help you
increase your profits, improve your cash flow and grow your business.
This week on the podcast, why next we're about to breach the £1 billion annual
(00:24):
profit mark, why it's so, so important to know the numbers in your business
and the little known thing you didn't know about the notes application on your iPhone.
So this week we've got a jam-packed podcast and we've just come back from a
little short trip to Italy to Naples which was most delightful wasn't it Claire?
Well other than the food poisoning. No a bit of last minute food poisoning.
(00:47):
All good but we are fighting fighting fit again. I feel like this is becoming
the podcast of the the couple that are just ill all the time.
You know we'll we'll crack on through and let's start with this week's news
news story that's caught my eye.
So this week in the news, I want to talk about Next. The headline is a new era
(01:09):
for Next as it targets £1 billion in annual profit.
So this year, they've posted full year profits of £918 million,
and they have big ambitions to cross that £1 billion in annual profit.
But how are they doing it, Claire? What do you think? Have you had a read of the article?
School yeah I think there's probably I do
(01:29):
have a little bit of an enjoyment of reading the annual statements
that these big PRCs release the next one
I think it's about 150 pages long so it's probably not reading unless
you are a particularly dull person like I am and really appreciate these numbers
but they I think it's fair to say that actually most of next growth is coming
from outside the UK and also from online sales their retail footfall is actually
(01:52):
down and I think I I know we have some other retail businesses that listen to this podcast,
actually, and I know they're struggling with a similar thing,
that generally retail is just so massively influenced by the weather in the
UK now and the weather is becoming so unpredictable,
that really it's becoming incredibly difficult to run a retail store these days.
So, yeah, most of next growth is coming from online sales.
(02:15):
Brilliant. And they've got such an amazingly joined-up online-slash-physical strategy.
The article talks about, and I think I would agree with this, how they have
one of the best understanding in the market how to
execute an online strategy to drive sales through
their physical retail stores in total they've got 458 shops
which is not a huge huge number so you know they're not
(02:36):
going through that big shops yes and they've got a lot of home homeware stuff
as well involved in that one of the big areas is i don't know whether you'd
call this diversification or additional product lines but they've actually bought
stakes in other the clothing brands and they include Fat Face, Reese, Jewels, and,
Yeah. And actually, this is one of the reasons why their profitability has increased
(02:58):
so much, because they have made some quite significant acquisitions over the last few years.
And when they do that, you know, of course, overnight, their turnover increases,
but they have been very, very effective at cost control. It's one of the things
that NextSite is like their superpower.
Repeatedly, they say they have incredibly stringent financial controls and they're
(03:19):
very good at cost control.
They have a platform they refer to as TP and it's kind of like they're fully
integrated one-stop shop of everything that a retail business would need.
So when they buy somebody like Fat Face or Reese, they expect to be able to
just slot that business, their website, their e-commerce, their financial system,
their warehousing system.
(03:39):
Everything just needs to slot into this TP system.
And that is one of the criteria that they're saying is whether they will or
won't buy a company is whether it will work on TP or not.
And that is one of the reasons why they get so many synergies and cost savings
from making these acquisitions.
Amazing i think they just sound like and always have sounded
like an organization that just really got themselves
(04:01):
together in terms of their strategy and the way they want to execute it yeah
absolutely another big thing that they've done over the last
couple of years as well since 2017 is they their strategy they're quite open
saying in 2017 their strategy just stopped working their sales were declining
footfall was declining both online and in and in shop so they kind of had a
bit of a rethink as to what they were doing and they doubled down on the things
(04:23):
that were working They looked at their numbers,
they doubled down on the things that were working, and that's why they've continued
to have growth on to 2024.
But quite interestingly, when you look through their annual report,
it's a massive cost saving that they're citing from being able to renegotiate
their rental contracts with their landlords.
They show the before and after renegotiation. And one of the key metrics that
(04:45):
they track is with having 500-odd stores in the UK, they track the minimum renegotiation
period that they have for their stores.
They do that on average and that's four and a half years so that's still
quite a long time but I guess in the world of next PLC
it's not that long but it's definitely a top tip for small businesses to
think about when you're signing a lease contract is you want to make sure that
(05:05):
you've got these things in called break clauses which give you
an opportunity to get out of the contract if you don't want to be in it maybe
you want to shut your business or probably more likely your business is expanding
perhaps you need a bigger premises or you just want to renegotiate with your
landlord because you don't think you've got a good deal a break clause is a
really great great way to do that and that's something that NextSites has been
its reason that it's been able to control costs so well when costs have been increasing so much.
(05:29):
Yeah, I mean, they can clearly execute long-term strategies very, very well.
I mean, we talked on this podcast about, just a few weeks ago,
about the body shop and the trouble they've had.
What do you think about the fact that their CEO's just been there and he's had longevity for so long?
I think he's been there near on 20 years now. He's Lord Wolfson.
Do you think that's part of why a company can execute such a long-term strategy?
(05:50):
You know my views, because this is one I share with politicians.
Of being in and out like a revolving door and never really been able to deliver anything.
Thing i'm a big believer in you know long-term leadership
it's an interesting one because normally i
think you're looking at these plcs and they've got i don't
want to be rude when i say this but they've got probably men in
their 50s or 60s sitting in these board positions but i think
(06:13):
this simon walson he came in when he was i think like
quite young yeah 27 like really really young and
he's been there for 20 years so he's still quite quite young
in terms of ceos of these sort big blue chip
companies and i think that's definitely helped because yeah
i'm just i'm not i'm not sure where i sit with this one
in terms of whether it's a good thing for a revolving door of ceos
(06:35):
or longevity because i do think that you
know after about five years or so i think most
people tend to get a bit stale oh you know a fresh impetus that
comes in i wouldn't disagree with that there's two sides of this
coin isn't there there's the there's something about a fresh pair of eyes
and there's something about you know people often say within five years
a ceo can can execute the vision it wanted to execute it's probably time
(06:55):
to move on to the next thing but equally this guy's a seriously smart
guy i mean this is 20 years of working on
this i mean just put some real context around this which absolutely blows
my mind because i remember this story from when i was a kid is i think my my
family talked about buying shares in next i must yeah 20 years ago and i distinctly
(07:16):
remember them being about two pound 50 a share and i remember my mom turning
turning around and saying, this isn't going to continue.
This is, this has just gone up so much. It just can't possibly continue.
And I remember saying at the time, you know, these have just gone up and up
and up because they've gone up from 50 pence to £2.50 over the last 10,
15 years. And she said, they just can't go any further.
They're just a success story that can't possibly continue and never bought them.
(07:40):
And today the share price is £90, you know, a mere 20 years on.
£2.50 to £90, that's 3,600% more.
Than they were that day. And my mum said these couldn't possibly continue because
they were on such a bull run.
And I just think it's an example where this is a company that's been on a 40-year
bull run. I mean, you know, they do exist and it's tremendous.
And they're talking now about going from that £918 million to £1 billion,
(08:04):
going overseas and, you know, are we going to look at this £90 share price now
and it's going to be £1,000 in 20 years' time and we're going to regret not
putting the money in now, you know?
The thing with Next is that when you're a listed company,
so you're on the stock exchange, change you have to release quarterly statements
and say what you're predicting your results to be and things like that and
next famously are always very very conservative with their
(08:26):
results and they always under a
promise and over deliver that's historically been what people
expect of next but i mean their growth is definitely
slowing i think there will be
a change of ceo at some point i do think that you're
right that having a stable ceo for a long time can sometimes
times have benefits when that is a good ceo because it's the
(08:47):
difference between a ceo coming in expecting to only be there
for sort of three to five years they make short-term decisions based on
cutting significant costs making short-term profits
whereas this simon guy has been there for
a long time has been able to make the right long-term decisions but has this
i love this simon guy he's a lord but this simon guy lord wolfson he is probably
(09:11):
coming to the end of the fruitfulness as some of his decisions that he made, you know, back in 2020,
I think, sorry, 2000 was a pivotal moment for Next because they were one of
the very first companies ever to promise next day delivery.
Everybody thinks it was Amazon that was the trailblazer when it came to next
day delivery, but it was actually Next that very first introduced this back in 2000.
(09:32):
So they've had, you know, nearly 25 years of the benefits of being ahead of
their peers, but their peers are catching up now. And I think that's the problem.
What next for Next? Yeah, especially with the likes of Temu and Xi'an and these
Chinese organisations selling direct to consumer, cutting the import taxes out of the loop.
(09:52):
It's a big issue for a lot of those type of companies. Yeah,
but it's a bit of a demographic, you know, Next is probably like the mum market
and older and Temu and Xi'an and companies like this, they are targeting teens and fast fashion.
So I can't imagine that that's causing too much of a headache for Next.
Yeah, for sure it will be taking some of their market share. Mr.
(10:13):
Wolfson is worried about it because he's campaigning against it.
Well, I don't know. I do think that maybe we should. That is one of the benefits
of Donald Trump is that he thinks that they should all be banned in America
and people should be buying American products first.
Indeed. Talking of Donald Trump, that was nearly my news story this week about
his new social media company.
But we won't go into that and let's move on to this week's Deep Dive.
(10:37):
So this week in our deep dive, know your numbers, why it is so,
so, so important, in fact, imperative in business to know your numbers and know them well.
And we're talking today about management accounts, aren't we, Claire?
Yes, management accounts is my superpower.
I am a chartered management accountant. So there are different types of accountants.
(10:59):
There are some that specialise in like your year end statutory accounts and your tax returns.
And then there are people like me who study with With CIMA, that's C-I-M-A,
and we specialise in management accounts, which are accounts that are used internally
by the business to drive business performance.
Absolutely. And I'll say this from the off now,
if anybody's listened to this podcast and turns over £20,000 or more and does
(11:24):
not get a set of accounts every single month, which they're able to look at
and understand how their business is performing on a line by line detail,
then they are doing something wrong straight from the off.
You do not run a business from annual accounts.
They're very different. Why are they different, Claire? What is the difference
between management accounts and annual accounts that a lot of business owners will be aware of?
Well, the main, the most significant difference is the frequency.
(11:47):
So your management accounts you would be looking at, normally you'd be looking
at monthly, but in, you know, I've worked in big blue chip organisations where
we're doing what we would call a flash account and we're literally doing it weekly.
We're keeping on top of our costs and our performance on a weekly basis.
So most businesses though need monthly, and I I'd say if you're a really,
really small business, I'd say maybe like sub 50k or even 100k,
(12:09):
you could probably get away with doing it quarterly.
But best practice is absolutely monthly for management accounts.
So that's the most significant difference.
But aside from the frequency, the biggest difference with your statutory accounts
is that there is actually a legal way that you have to publish your accounts.
So these are the accounts that go onto Companies House and are publicly searchable.
And there is a legal format for that.
(12:29):
And therefore, every business, no matter what their size, every small business
has exactly the same format.
Every small business has exactly the same structure exactly
the same cost base exactly the same performance metrics
that matter to it and that's where your management accounts come
in because your management account should be in the format
that is the most helpful for the business it should
(12:51):
be the most helpful for understanding what is and isn't working and it
should be the most helpful for understanding where your attention
needs to be focused so using the legal statutory
format will not enable you to do that
yeah and actually management accounts are highly customizable
aren't they Claire so you know you know
if you specifically want to drill down and analyze a certain
(13:13):
cost base or a certain revenue line you can start to
post those costs and revenues specifically on that line and then
track them month after month year after year and
it becomes incredibly invaluable really just talk
to us a bit about that sort of customization that you know
you know I like a lot of GL lines or what is a GL line for
people that I like a lot some people like less and you
know that's the great thing about it yeah so GL line it
(13:35):
means general ledger or actually in a lot of the online software
packages is probably called a nominal code or an account code and
that just means when you're putting your invoices onto your system
maybe you've got sage or zero clear books quick books any of those you have
to code it somewhere you have to say what that expense is for so you might say
it's travel expenses or you might say it's marketing so what you do is you group
(13:55):
all of your invoices into these nominal codes and then you group the nominal
codes into into management account categories and that's how you build your your P&L up.
One of my top tips that I would give is that, you know, as with annual statutory
accounts where I said that they have a certain legal format,
when you, for example, sign up to Xero or QuickBooks or Sage or anything like
(14:16):
that, they also just have this out-the-box format that,
will work for most businesses, but is not necessarily tailored to your business.
And it's so incredibly important that you tailor your management accounts to
what your business needs, because that's how you get the most value out of them.
So you can change the format of your P&L, or your balance sheet,
your cash flow, whatever it is that you're looking at, you can completely customise
(14:38):
that to your requirements.
So just because it's out the box in Xero, and that's what Xero says,
doesn't mean that you necessarily have to have that format.
So speak to Xero, speak to your bookkeeper, your accountant,
whoever it is that's managing that Xero software or QuickBooks,
Sage, whatever you're using, because they can customize your management accounts
and really make it most helpful and most easy to use.
(14:58):
Great. So who should be producing these management accounts?
Should it be me or as the business owner or the accountant or somebody else?
So the first, there's probably three ways that a business can go about getting management accounts.
The first one is to simply run your reports out of your own bookkeeping software.
So, So, you know, I've mentioned Xero, Sage, QuickBooks, all of those,
(15:20):
your bookkeeping software.
You can go on and you can run a profit and loss or you can run a balance sheet
or a cash flow statement from those systems.
So that's probably the basic thing that you can do.
The reason why I put that as the basic is because you tend to have the out-the-box, non-customized.
And really what you want is...
(15:41):
You want your bookkeeper, ideally, the next sort of what I'd say the silver
standard would be that you would have a bookkeeper, you know,
maybe run those reports for you, have a look over them, maybe add some comments onto them for you.
That should be the minimum that you're getting if you're paying a bookkeeper
or somebody like that to do your management account.
So I would expect a customised report that's got some commentary in and explains
(16:04):
where your attention needs to be focused.
Now, if you're going for the absolute gold standard, that's where you come and
you use is a specialist like me, who's a charter management accountant,
has got plenty of experience and is sort of the only thing that I do is this.
And we produce a completely tailored report for your business and it's all interlinked.
So you'll have a profit and loss, you'll have a balance sheet,
(16:25):
you'll have a cash flow, you'll have KPI report and all of these will have commentary on.
So you'll still get your full P&L from us. So you can understand your income,
your expenses, is your profit but more importantly what
we're doing is we're highlighting exactly what you need
to pay attention to because there might be 40 50 lines on your
profit and loss and you don't need to look at all of them where does your attention as a
(16:46):
business owner need focusing and what actions do you need to take what things
do you need to be aware of where are your trends moving what costs
are going up what costs are going down and what we think the
knock-on impact of that would be so you've got three options
you've got bronze which would be just running yourself out of your out of
your online bookkeeping software you've got silver which would be
to ask your bookkeeper to do it for you and then you've got
the gold standard which would be to come and work with a company like profit
(17:09):
cash growth yeah so would all if if i go to my bookkeeper and ask them to do
my management accounts and just you know report on it once a month would all
bookkeepers know what what i was on about and it would be that that easy or
no i mean unfortunately it's one of the,
i don't want to be you know disrespectful to bookkeepers because they're very
skilled people but they're skilled in bookkeeping and that is the posting of
(17:31):
the day-to-day transactions so posting your invoices, doing your bank reconciliations,
maybe doing your payroll VAT returns things like that. The.
I did a qualification. It took me four or five years to become fully qualified
just in management accounts.
So from that perspective, the bookkeeping qualifications out there,
they might have one module, which is normally optional and is normally about
(17:53):
12 to 16 hours of study on management accounts.
So that gives you an idea of the difference in skill level.
I think if you're a small business that's turning over low six figures or five
figure turnover, you could probably get away with using your bookkeeper.
But certainly when you're getting over four to five hundred K turnover,
I would really question whether your bookkeeper is providing you with the information
(18:15):
that you need to run your business.
And if your bookkeeper isn't, then you need to make sure that you've got the
skill set to fill that gap.
Well, I guess at that point, it's not just about getting a set of management
accounts because most business owners would probably say they didn't go into
business because they're great with numbers and accounts. They went into it
because they're a great salesperson or they want to deal with customers.
And actually, you know, unlocking the understanding of those accounts is where
(18:37):
the real value actually comes.
And, you know, if you were a big enough business, you'd have a full-time finance
manager or whoever that is, accountant, in your business doing that for you. Yeah.
You know, you don't do that until you reach a certain size. There is a hybrid, isn't there?
And that middle ground is probably, you know, getting the management accounts
with a good commentary with it, with somebody who's can, you know,
with fresh bow eyes, look at your business every month and guide you through that. Yeah. Yeah.
(18:59):
It's really interesting. Actually, there's a post on my Facebook page this week,
and it's a business that I'm working with.
And when you have experience like me of just working with numbers constantly.
And there's an art form to taking a
number and displaying it so that it paints a picture and we
took a business's last I think it was like this last six years worth
(19:20):
of sales and we split it quarterly and we
said okay look at the this business had you know almost
doubled its turnover in the last six years but all of that growth
had come in in like quarter two and quarter three and quarter
one had been completely stagnant there was zero growth in
quarter one at all and the business owner when I
sat down and sort of presented this the business owner and he said
oh well it's because of x y and we've got new customers and
(19:42):
they don't work in these industries there are summer businesses and i was like i
fully understand all of that i i understand the business reasons behind it
are you aware that the implications of this means that
you've got underutilized assets in q1
you've got underutilized staff so you've literally got staff
sitting around being paid to do nothing and you've got assets sitting around.
Not being utilized and you're turning business away
(20:04):
in q2 and q3 because you're at full capacity
and also you're going to have cash flow issues so
all of these when you know how to skew a number and
how to present it in the right way it becomes incredibly valuable
so out of that the most important thing with your
management accounts is that you then say okay so what action do we
need to take to drive this number in the right direction and it
(20:25):
was we now need to target customers in non-summer based
industries well i guess they're called management accounts for a reason and
that's either their accounts for the management or their accounts to help you
manage and yes actually they're both they're both and you've got a question
how you can sustainably and accurately manage your business without those accounts
they are the absolute blueprint that is driving the business.
(20:46):
Yeah, 100%. Your management accounts, if they are delivered to you in the right
way, your management accounts tell you exactly what is and isn't working in your business.
So you know what isn't working and you need to fix it.
And you know what is working and you need to 10x it. You need to do more of
that stuff that is working.
And it covers absolutely everything from your sales and marketing to your most
profitable products to even your most profitable or efficient employees.
(21:10):
You can normally tell all of this information when you know how to to understand the
numbers do you know when you really love management accounts is
when you are so eager to get your hands on it you'll
know this from from doing my accounts for
my businesses claire that i am chasing like day four
day five of the month like when will the accounts be ready when will
they be ready because i'm just desperate to look at the pnl and just analyze
(21:30):
it and understand where i am for me that for me it's
part of the reward of being in business the fact that
i can see the results or the fruits of my labor
for that month and it keeps me going month month after month after
month to see that growth and you know because I you know
I do want to grow and I think I it
just baffles me when I talk to be baffles me
the size of some of the businesses that I talk to I talked
(21:53):
to one the other week that turns over 1.8 million pounds and only has annual
accounts yeah it's it's you're almost you're leaving it to chance if you get
that big and you don't know how much profit you're making you don't know what
your overheads are and therefore what your break-even point is you don't know
how much gross margin you're making you don't know if if you can afford a new employee,
you don't know if you can afford that more expensive IT system.
(22:13):
It's just, it's baffling to me that businesses get to this size because it's
not even that expensive.
You know, to come and work with a business like me.
You're talking like hundreds of pounds a month it's not it's not
significant sums in the grand scheme of things
and in a year you should easily get that
money back in increased profitability in a business i think these things
(22:33):
pay for themselves almost instantaneously they're so valuable they
they are absolute must-haves in businesses if you're a serious
business owner and you want to run your business seriously and i
think that when i was talking about sort of bronze silver gold you know
you get your bookkeepers and they are capable of producing
a set of management accounts for you and sending it to you but it's that what actions
as a business owner do you need to take to get your business
(22:55):
either back on track so it is performing how you want it to
to perform or to capitalize on that
good performance and and continue that across your business and i think that's
where the difference between a specialist like myself and a bookkeeper is that
my job then becomes okay it's a given that you're going to get really good financial
information but the value that you get from a specialist like me is actually
(23:15):
from helping helping you to drive those numbers.
So we're not looking and saying this was the performance. We're looking and
saying this was the performance.
Where are we going to be next month and how do we make sure we get there? Yeah.
I mean, there's a reason why in big business, the chief financial officer is
the second highest paid person after the CEO, because those guys are the ones
that drive the business from the numbers.
A hundred percent. I mean, you, you know, good CFOs are multi six figure salaries now.
(23:40):
So, and, and that's not in a blue ship company. That's just in a,
you know a local local company you know we're
we're near Milton Keynes and Milton Keynes CFOs FDs 100
150k salary plus bonus car benefits they're very very expensive and you know
you can't hold down a job like that if you don't deliver value that's the reality
so if you don't have monthly management accounts do it do it now do not procrastinate
(24:04):
one more minute and let's move on to this week's profit cash growth extra.
So in this week's Profit Cash Growth Extra, I have got a nifty little tool,
which I think the majority of people will already have, but not even know they have.
And it's been a game changer for me. And it's the scanner function within the
(24:25):
notes application on iPhone.
So that's that little yellow notes pad looking application on the iPhone.
If you go into the app and you You open a new note.
There's a little tab that says, I think you click on the camera and you click scan documents.
(24:45):
And you can simply scan page after page after page.
So I'm actually trying to do this as Simon speaks because even I don't know about this.
But I don't even have the notes app on my iPhone anymore. I've deleted it because
I never use it. So what do I need to do? Because you didn't know how much value this had.
I need to download the notes app.
Yeah, the notes app is great. and you can literally i
(25:05):
mean i use it for signing contracts and literally
everything because you know we've got a we've got one of those big great big
scanners in the office but it's just a hassle you know
now i can just print stuff up at home print it off wherever i am scan it
you scan page after page after page and it links all the documents into
one pdf so you can literally scan a 30
page contract and you literally you scan it using the
(25:26):
camera on your phone it scans it in you know more than
adequate quality for well certainly more
than adequate quality i use it for contracts for solicitors for property purchasing
and always acceptable and i just
use it just to scan and save everything digitally that i've got
so you know if i have a bit of paper come through the door in the post i just
scan it stick it in google drive and save it it's an absolute sort of game changer
(25:49):
because it's all automatic in the way that it works and honestly if you if you
haven't found it check it out it will literally change your life of course you
you can pay for one of the scanner apps that are out there.
You know, they cost a couple of quid a month and they probably do the same thing.
But this is all free. It's all integrated into your iPhone under the Notes app.
So that's it for another week's podcast. We'll be back next week to go through
(26:11):
some more news stories and some more juicy deep dives.
In the meantime, if you did want to check out Profit Cash Growth,
you can go to the website, ProfitCashGrowth.com.
You can go to the Facebook page, the Instagram.
Yeah, just drop me an email. Also, we have a special offer at the moment,
actually, for any businesses that are interested in management accounts you can
get 50 off your first three months worth of management accounts
(26:31):
if you want to work with me and the team and
get your management accounts and improve your business and drive your performance
so yeah drop me an email at claire at profitcashgrowth.com or info at profitcashgrowth.com
and um yeah just quote the profit cash growth podcast and that offer is valid
until the end of may excellent lovely we'll see you all again next week.
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