Several of our larger clients have incorporated advisory boards that meet three or four times a year.
These boards are made up of the shareholders, middle management (if there is one), the accountant and a couple of people who it is thought have a skill set that can bring value to the company.
The objective of these boards is to analyse a scenario, debate it and come up with answers or varying scenarios to work with. Do they work? Most certainly they do, as long as there is a chairperson directing the meeting, and a fixed agenda.
When I say larger clients, they have between 12 and 16 employees, with a turnover of $1 million to $2 million. So they’re not huge companies, but progressive ones.
The story here is not that it’s a good idea to have advisory boards — well, it is, as long as they are run properly — but what occurred in one of these meetings last week.
Part of the agenda was a brief overview of trading and financials from the past quarter and, as we were past the financial year end, there was also a review of the financial year.
These reports were formulated, as per normal, by one of the shareholders. As they were being written, it would be fair to say that a certain level of anxiety had crept in, increasing to a level of panic when they were completed.
Hence, I received an early morning call along the lines of “cancel the meeting, no way can we show him these”. The “him” in this instance was the formidable bank manager (formidable in width, rather than scary) whom I had insisted on inviting against the shareholders’ wishes, but for very good reasons.
The issue that was now written in all its glory and included in the agenda came as no surprise, and one that has been followed monthly.
It was simply that the turnover showed a slight backwards step this year against the last one — slight meaning 4%, in itself a smallish number but, put against the growth of the past five years it looked like Armageddon to the shareholders.
This company has borrowed to finance its massive growth, both nationally and internationally — not heavily, but enough to warrant careful scrutiny on the fluctuations of the international dollar.
Let’s set the scene — the first advisory meeting where the bank manager has been in attendance, the first drop in income for eight years, the first time there has not been massive annual growth, and the first time the shareholders are planning to ask for a mortgage to buy their first house.
In other words, way too many firsts, and you can see why panic was imminent.
The truth of the situation was the oversized bank manager was invited to go over the financial position from the bank’s perspective and to outline steps for the future year of trading.
It was all good news, but news I wanted the shareholders to hear in an environment that allowed for healthy discussion.
The facts were a slowdown in trading was just what the bank wanted in order to consolidate the company position.
The company’s balance sheet showed a massive improvement over last year’s, and a creditor’s situation within 40 days and not 90. The shareholders got their approval for a mortgage based on the balance sheet, and everybody left the meeting happy.
Was that the only reason the bank manager was invited? No, the main reason was so the bank had an understanding of what 2016-17 had in store for this business.
There was no growth last year, but this year the UK and European markets are about to open their doors. Hold on to your calculator Mr Big, you’ll need it.
The moral of this story? It’s not all about year-on-year growth. Sometimes you have to take a step sideways to go two steps forward. Just make sure your whole team is on board.
