Controlling
Governing profitability to steer the company
Every business owner has a feel for how their company is doing. Our job is to turn that feeling into figures, and the figures into decisions: which costs to cut, which sales mix to push, where the margin can be raised.
From past to future
Reading the figures to guide choices
We start from the financial statements and the accounts of recent years: the historical series show how costs and revenue move, month after month. On this basis we build the forecasts and the action plan. The more regular the pattern, the more reliable the estimates: every company has its own rhythm, and the figures reveal it.
The financial statements, which many see as a tax obligation, are for us the starting point for deciding the future.
Break Even, used to decide
Usually you start from turnover and at the end of the year you look at what is left. We reverse the process and start from costs.
Costs first. We do not just divide them into fixed and variable, but into reducible and non-reducible: those that can be acted on and those that remain regardless.
Then the break-even point. We calculate it as the minimum turnover that covers all the year’s costs.
Finally the commercial target. The Sales Budget says how much revenue is needed, and from what, to reach the profit the business owner has set.
If halfway through the year the budget can no longer be reached, you don’t wait for December: costs are cut, the sales mix is corrected and resources are focused on the products and customers that yield most.
The budget as a tool of responsibility
Working harder is not enough to earn more
You need clear, shared objectives. For every area of the company we set a cost and revenue budget and a manager who answers for it. Delegation then stops being an order to carry out: everyone manages their own part and knows what they will be measured on.
Over time this shared responsibility becomes the engine of improvement: those who know what is being measured also learn how to take action.
COGS
Profitability without cost accounting
Profitability can be improved even without full cost accounting. You start from COGS (Cost of Goods Sold), the cost of the raw materials or goods sold, adjusted for the change in stock.
An example. If on average raw materials account for 40% of turnover, the product in which they weigh less is high value-added; the one in which they count for more erodes margin and competitiveness. Applying the bills of materials to sales gives you a real CT scan of the company: the profitability of every product and every customer, in sharp focus.
With this picture, choices become simple: push the high value-added lines, work on purchasing and production where raw materials weigh most, and put the sales effort where profit is really made. The data is already in the company’s management software; when more tools are needed, we build them to measure with our WebApps.
How we operate
The Predictive Analysis Simulator
We have developed a Simulator that applies statistical algorithms to historical accounting series and projects the figures over the next twelve months. It serves to anticipate results rather than put up with them: if the forecasts show a negative variance, the business owner has the time and the data to correct course.
You can see it at work: we have put online some examples of its main features. They are the ones the business owner deals with all the time: the profit and loss (PL) and the net financial position (PFN) for the next twelve months, the monthly break even point (BEP), the impact on cash flows of a change in the turnover ratios (DSO, DPO and DIO: average days to collect from customers, to pay suppliers and of inventory holding), and the DSCR simulation, which measures the company’s ability to meet its bank debts, with the corrective actions needed when the ratio is below the minimum required by the banks. The demo is in Italian.
The heart of the system: opening a window on costs, revenues and cash flows for the next twelve months
Historical financial statements
The last few financial years side by side: the statistical basis on which all the forecasts rest.
Reworked accounts report
Compares each month with the same period of the year before and highlights variances and trends.
Profit and Loss Budget
Sets the year’s economic target, line by line, and who answers for it.
Profit and Loss Rolling Forecast
Every month it replaces the forecast with actual figures and recalculates the year-end result: you see straight away how far you are from the targets.
Cash flow forecast
From the forecast profit and loss it works out each month’s cash: the peak funding need, the headroom on credit lines and the net financial position show up in good time.
Monthly figures
The company’s joystick
Annual data are not enough: for every month of the year we calculate the Break Even Point, the Sales Budget and the share already covered by the order book.
Together they act as a joystick: they tell you straight away whether the month’s target can be reached and, if not, which corrections to make and when.
The next step
From forecasting to managing
We review the data together with the business owner at regular intervals, because figures are only useful if they become decisions.
For those who want to go further we introduce cost accounting. It shows margins by product, customer and market and supports both day-to-day decisions (prices, sales mix, continuous improvement) and strategic choices (markets, development plans, investments).
The financial statements are a photograph of the past. Controlling is the tool for building the future.
Finance
Finance must follow the business, not the other way round
Liquidity strains and difficult relationships with the banks are the most concrete risk for an SME and, in the long run, they hold back development. It is finance that decides how much, and how fast, the company can grow: that is why it has to be followed with the same method as production and sales. The aim is a financial structure tailored to the business, with instruments, timing and terms that keep pace with its development.
Relationships with the banks
A bank is happy to lend to those who can explain their figures before it has to ask for them. That is why we follow finance every month, not only when there is an emergency, so that the relationship with the bank is transparent and ongoing: it receives clear data, solid forecasts and a strategy consistent with the accounts. Our work does not stop at producing figures, it builds trust; and trust shows in the rating, in the terms applied and in how easily credit is obtained when it is needed.
Cash flow and treasury
A solid company is not the one with the highest turnover but the one that manages its cash best: you can close the year in profit and still run out of liquidity, as long as customers pay at 120 days and suppliers want their money at 60. That is why, starting from the profit and loss budget, we work out month by month how much cash will come in and how much will go out. Periods of strain can be seen well in advance, when there is still a choice about how to cover them, and before an investment you know whether the financial structure can bear it. At every close the cash flow statement compares actual figures with the forecast, and course is corrected. With planned inflows and outflows, credit lines are used less and less interest is paid, dependence on the banks falls and working capital works instead of sitting idle in receivables and stock.
Business plan
Every company’s compass
A business plan is not a formality and is not just for getting finance. It sets the objectives, strategies and stages of growth, and gives the company credibility with banks, funds and investors. We write it so that it can be checked: every objective has a figure and a date.
We support the business owner in drafting and implementing the industrial plan, including in view of a stock market listing. Every plan is tailor-made, with the figures decision-makers need and the language lenders expect.
Once the plan is approved, every figure becomes a target to check month by month, and every variance a question to answer.
A good business plan does not tell a dream: it builds a company.
What the industrial plan contains
- who runs the company: the business owner and the management, with their experience, roles and skills;
- the market and the competition, with the factors that decide success;
- sales targets, the commercial strategy, the marketing plan and the positioning matrix against competitors;
- technical feasibility and the three- or five-year financial plan, with profits and cash flows;
- the financial requirement and how it is covered, between equity and bank debt;
- expected profitability and the risks.
Every item translates into figures, and the figures go into each year’s budget.
A case history
Efficiency: putting things in order to become competitive again
A company that worked hard and delivered late. It put its processes in order and discovered that efficiency can be the key to competitiveness.
The problem
Half of the order book was delivered late. Production planning did not work, staff waited for instructions, the warehouse was disorganised and stock records were out of date. Above all, there were no precise data on actual costs and production standards.
A lot of work, little efficiency: a situation many business owners know well.
Production
Average delivery times were just 11 days from order: with such tight deadlines every mistake weighs heavily. We redesigned planning and production in three moves.
- Stage schedules with a “pull” logic: each department produces only what is needed, when it is needed and in the quantity required.
- A weekly check of workloads, to balance production capacity and deadlines.
- Data collected on the machines and time-and-method analysis department by department, to optimise batches and processing durations.
As a result, late deliveries fell from 50% to 10% of the order book.
People
Reorganising means changing processes, but also the way people work. Training, defined roles and duties, standard operating procedures and shared objectives brought more autonomy and a greater sense of responsibility at every level.
Warehouse
A barcode system records goods in and out as they happen: every stock movement is traced and errors in warehouse flows have disappeared.
Cost accounting
Instead of the cost of each individual job, we calculated the hourly cost of each processing stage: grinding, tempering, laminating and the others. Each of them became a profit centre, with reliable data for deciding prices and priorities.
The result
In less than two years delays fell drastically, efficiency and productivity improved and, above all, the company regained control of its business.
Where do you start? From the figures the company already has
The first meeting is to read them together and see where action can be taken.
Arrange a meeting