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Stefan Töpfer of Winweb has put together a cracking team for his Small Business Blog. It's a new blog, but it's got off to a great start. What's more he's been kind enough to give me a mention. Well worth a read and you'll find a permanent link to the blog in SME Resource.
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Following on from yesterdays post here is some advice from entrepreneurs in the form of clickable slides courtesy of BusinessWeek. The most popular advice is to get the right people and have adequate capital for the venture. It's good to see that it backs up the post yesterday with some practical experience and that it places emphasis the importance of properly managing the financial side of the business.
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If you are a recent start up then you should take a look at a list of common scams in operation as published in Times Online. If you are not a start up then hopefully you know them all, but just in case I suggest a quick read.
I was particularly struck by the one on fraudulent billing. In this scam you actually receive a cheque to bank by the company trying to commit the fraud. It's a genuine cheque and it will clear, but in reality it's a sprat to catch a mackeral. Cash the cheque and bills arrive. In accordance with terms, undoubtedly in very small print, sent with the cheque.
So nothing has changed then and the old cliche "If it sounds too good to be true - it probably is" still holds as one of the best methods to spot a scam.
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Now we all know what KPI's are ( if not see Part 1 & Part 2 ), let us actually use one. A good place to start is to see how we are performing on credit control.
If on average an SME takes 60 days to pay it's bills and a large company 80 days ( see Getting paid ), then are we getting paid quicker or slower than average?
The way to find out is by using the average collection period KPI as follows:
Average Collection Days =
Average trade debtors (exc VAT sales tax) x 365, divided by annual sales
For example, if our average trade debtors (exc VAT) are 100,000 and our annual sales 1,000,000 then our average collection period is 36.5 days. A good result and one most SME's would be more than satisfied with.
It could be that our debtors were 200,000 instead of 100,000 then our average collection period would be 73 days. In this case we could look at improving credit control to get paid quicker and help with cashflow.
By monitoring the KPI we can spot potential trends in advance. For example, when the average collection days lengthen it could be the result of economic factors, such as a recession. It could be that a particular industry sector is hardening with the result cashflow and margins are tighter for all companies involved.
Monitoring average collection is also a great way of monitor credit control performance; if you stop chasing the debts for a month then you can expect the average collection days to increase. For start-ups it is all about cashflow and not paper profits and average collection days helps put credit control into focus rather than it being a blur.
Background information & detail
Annual sales
Ideally, this should be credit sales only e.g strip out any cash sales. The sales figure needs to be annual so ensure that you take a 12 month peiod.
Average trade debtors
It is usually adequate and easier to take the period end figure. However, if there are very large seasonal variations in the year it is better to take an average figure. The true average is the average of 12 monthly debtors figures.
To compare directly with published credit control statistics ( see Getting paid ), VAT sales tax needs to be excluded from trade debtors figure. However, to monitor changing performance for the business it's adequate and easier to use trade debtors including VAT sales tax.
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Business Link, the advice organisation backed by the UK Department of Trade and Industry, has 
launched a wide selection of free online tools.
The aim of the online tools is to help SME's deal with the complications of UK government requirements. The tools ask you questions and filter the end information dependent on your needs. In theory, it should make the task of getting relevant information much easier.
It's particularly useful if you are starting up a small business for the first time. The tools are free, easy to use and are great to gather information. Tools include:
The tools are process driven so do double check the results and get advice. It's not easy to replace judgement and experience with a computer.
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You can find some interesting things on the web. Guy Kawasaki's name crops up often and with good reason. He's an entertaining read and his enthusiasm shines through. In Management Consulting News there is a short article on business start ups. It's aimed at consultants although I think it could be applied to most business services companies.
He advocates services that differentiate you from you competitors and services that are valued highly by your clients. Nothing new here, but Guy uses a very helpful and simple method to visualise how your business is currently performing and where it needs to get to.
I did like his tips on pitching and presentations, especially about giving background information on your business. I'm now down to one slide on the background information, but I've learnt the hard way.
And finally can't argue what he wants to be remembered for.
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