More than just a number-crunching accountants
The situation: A specialist manufacturing company which had been operating for many years, was at near full production capacity, but fell short of achieving the profitability required to remain viable.
The Directors of the business could not identify why their business was having cash flow issues as they were paid in a timely manner for all works undertaken and they believed they were running at over 95% capacity. They wondered if this had something to do with the recent growth of the business but could not identify the issues.
They were currently being advised by another firm of accountants and were not receiving the consultancy advice they needed to make their business viable. Having been recommend to Pocknells they contacted us and asked if we could look at this issue further for them.
The solution: The first step was to get a thorough understanding of their operation and explore their cost of production in relation to their sales pricing. It soon became quite clear that the current pricing model was not working for their business.
Fixed overheads such as Director’s remuneration, dividends, Corporation Tax and staff overtime, had not been considered when quoting for works and this was leaving a significant hole in the business’ finances.
With a view to returning the company to a profitable business, we had a meeting with their tendering and management team and looked at the following:
- We re-worked the budget for the company’s annual outgoings and agreed the breakeven point of the company (including all fixed overheads)
- We looked at the prices that would need to be charged for future projects, so that all overheads were included in the projects, along with a margin of profit (to build the company’s reserves for future years.)
- We advised on how the increased prices should be presented to the end customers.
- Installing Xero software so that all Directors could see their data in real time and allow standard prices to be set so that quotations were easier to produce.
- We used Xero’s budget management tool so that the directors could see in real time if there were any issues and any areas where the Company was overspending and not keeping to their budget.
- We assisted in the integration of 3rd party apps to make Xero meet the demands of their business.
The Directors were able to monitor their cost of sales and profits on a real-time basis and have turned around their profitability and secured the company for the future.