The news this week of business failures past, present and possibly future is alarming.
Stories of incompetence, ignorance and a lack of information on a huge scale.
I was fortunate to have respite from this doom and gloom on Thursday when I attended a masterclass with a very successful entrepreneur whose wisdom would have prevented most of those failures….more of which later.
To begin the week we learned that Emma Mercer, who joined Carillion as FD of its construction business (not as Group CFO) in early 2017 took just six weeks to discover that it’s accounts were misleading and that the company had no idea of the extent of its losses on its contracts. KPMG has been its auditors for 18 years and hadn’t worked that out!
She told the CEO, CFO and the Board in May 2017, who ignored her until she told the HR director who took her seriously…and then it all started to unravel.
And then two high street chains fell into administration – for very different reasons – and on Friday Mothercare issued another profit warning. Of these businesses Toys r Us and Mothercare had business models that relied on consumer loyalty for mainly commodity products in competitive sectors. And both had long term financial commitments. Unsustainable although I suspect Mothercare will survive albeit in a much reduced form. Nevertheless both businesses ignored, or didn’t have the data to see, the warning signs.
What can entrepreneurial businesses owners learn from this?
Well the lessons entertainingly set out by Nick Jenkins at the masterclass I mentioned are a very good start.
If you don’t recognise his name, Nick is the founder or Moonpig, which he ran for 11 years and sold for £120m. More recently he was a Dragon for three years investing in 8 businesses (as well as several more outside of the BBC show).
His masterclass was extremely revealing about what makes a business successful. Moonpig made losses for 6 years before becoming hugely profitable. Many times he was advised to give in while only a few loyal mentor/investors stood by him. So persistence is probably one attribute.
He then told an interesting story about his business numbers (regular readers may have guessed what is coming). He was obsessive about recording the minutiae of every transaction and analysing what it informed him about his business. Details like where sales had originated from and not just, say, AdWords but which ad and which keyword. All entered on spreadsheets, sorted, analysed and recorded. When a competitor started TV advertising he found a way to track their sales as well! For years and years, even when he was making losses. And he updated his business plan and financial projections every year. So let’s add tenacity and knowing your numbers to the mix.
But perhaps most revealing of all were his comments on the cost of customer acquisition and recurring income.
You see Nick knew exactly how much he could afford to pay for a customer, what his gross margins were, how many times, on average, a customer would buy a Moonpig card and how many of their friends they would refer as future customers.
That data is worth its weight in gold. And by tracking his trends he could identify when his sales would exceed his costs.
How many entrepreneurial business owners know their numbers in that amount of granular detail? Its ok that was rhetorical: I can tell you it’s not many. And not because the data isn’t available, it is, or because they aren’t adept with spreadsheets (they can outsource to someone who is). Its because they aren’t prepared to put in the hard work as Nick did. So maybe we should add being prepared to put the hard yards in as well.
I’ve said before that success is a choice. If one thing stood out for me from Nick’s masterclass it was some of the choices that he had made to be successful. Are your choices as good?
To your success
Noel Guilford is the principal of Guilford Accounting a small business accountancy practice specialising in advising owner-managed businesses on current accounting, finance, and tax matters. You can reach him via email at firstname.lastname@example.org or by phone at 01244 660866. He is the author of the ‘Figure it out – an entrepreneurs guide to understanding your business numbers’ which you can obtain by visiting https://guilfordaccounting.co.uk. His latest book, How to Build a Successful Business’ will be published in early 2018.