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Grow Accounting

Business  Analysis Toolkit Report

Analysis for

a sample company

Your total score is 71%, you're getting there ..

But there's still room for improvement!

See your score breakdown below and review each section to dig deeper.

HIGH PRIORITY RECOMMENDATIONS

Review your messaging to ensure that your Value Proposition is communicated very clearly to your potential customers. Review guidance under Section 1 - Strategic Formulation.

Develop your Business Model. Review guidance under Section 1 - Strategic Formulation.

Introduce quality control procedures to improve the reliability of data. Review guidance under Section 4 - Reporting.

High

High

High

Click here to review Medium priority recommendations

Click to collapse Medium priority recommendations

Recommendation

Priority

Recommendation

Priority

Optimise your process for assessing the potential risks and rewards of new Strategic Projects such as an expansion, acquisition or a new service/product line, etc. Review guidance under Section 2 - Strategic Implementation.

Introduce procedures or increase the frequency of performing a detailed, in-depth analysis of your finances to identify new sales channels, improve profits, improve efficiencies, costs savings, etc. Review guidance under Section 3 - Strategic Review & Evaluation.

Aim to reduce the time it takes after the period-end to prepare Management Reporting. Review guidance under Section 4 - Reporting.

Aim to reduce the time it takes after the period-end to prepare the performance analysis of Management Reporting. Review guidance under Section 4 - Reporting.

Medium

Medium

Medium

Medium

Aim to increase the frequency in which you re-forecast the financial performance of your business. Review guidance under Section 5 - Performance Analysis.

Medium

SECTION 1

Strategic Formulation

This section focuses on making sure you have a well-defined plan before investing valuable funds in growth.

 

Topics discussed:

  • Value Proposition

  • Product/Market Fit

  • Business Model

  • Business Goals & KPIs

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Below are the questions and your responses that contributed towards your score in this section:

Question 1:

How clear is your 'Value Proposition' to you and your management team?

Your Answer:

Extremely clear

Question 2:

How clearly does your messaging communicate your 'Value Proposition' to your potential customers?

Your Answer:

Not so clear

Question 3:

How confident are you that you have achieved 'Product/Market Fit'?

Your Answer:

Extremely confident

Question 4:

How well developed is your 'Business Model'?

Your Answer:

Not so clear

Question 5:

How clear are your Goals & KPIs, and how accurately have you identified the one single metric that matters the most (Primary Metric)?

Your Answer:

Extremely clear

Value Proposition

You need to have a Value Proposition to building a lasting business.

 

Your Value Proposition tells prospects why they should do business with you rather than your competitors, and makes the benefits of your products or services crystal clear from the outset.

 

Value Proposition is about how you create value for a specific customer. Some Value Propositions may be innovative and represent a new offering. Others may be similar to existing products or services, but with a differentiating element. For example:

 

Pricing - offering a comparable service to what the customer is currently receiving at a reduced price. 

 

Superior product - offering a superior product at similar pricing to what the customer is currently paying.

 

Convenience - for example, providing free home delivery service. The customer gets the additional convenience of the goods delivered to his/her doorstep. 

 

Product performance - can include a faster or more powerful product or service.

Product/Market Fit

Product/Market Fit is a common term in the venture capital/Silicon Valley startups world. It's less common in the world of small and medium business. We think it's very applicable.

 

Product/Market Fit refers to:

  • building a product that solves the problem that the business was founded to solve, and;

  • targeting the right market.

 

Product/Market Fit is challenging and requires a thoughtful approach. And it's not just a conceptual idea. It involves achieving specific-measurable targets or KPIs in customer engagement and retention, and a profitable business model (or at least the potential to become profitable with a clear roadmap to profitability), before attempting to achieve growth.

 

It's crucial to achieve Product/Market Fit before investing in growth.

Business Model

Conceptually, the need for a business model is well understood. We generally recommended documenting your business model using the 'Business Model Canvas'. The Business Model Canvas is widely accepted as an excellent modern-day tool for documenting business models. It's designed to convey the essentials of what you need to know. Quickly, simply and in a visual format. 

The Business Model Canvas maps out your entire business model in one image.

Business Goals & KPIs

Goals & KPIs are what drive the long-term performance of your business and help connect your mission to your strategy. Goals & KPIs define success by selecting the single metric (Primary Metric) that matters the most and setting a target time frame for it to be achieved. 

Correctly setting your Goals is a necessary condition for building a successful business. 

SECTION 2

Strategic Implementation

This section reviews your process for identifying, selecting and implementing strategic projects.

 

Read more below.

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Below are the questions and your responses that contributed towards your score in this section:

Question 6:

How clearly do you prioritise and select Strategic Projects for implementation? 

Your Answer:

Somewhat clear

Question 7:

How well do you assess the potential risks and rewards of new Strategic Projects such as an expansion, acquisition or a new service/product line, etc.?

Your Answer:

Somewhat well

Question 8:

How well do you assess the Cost of Investment for new Strategic Projects in terms of management time, funds, etc.? 

Your Answer:

Extremely well

Question 9:

How accurately do you measure the impact of changes in the product (or service), customer mix, etc. on the business? 

Your Answer:

Very accurately

Question 10:

How well do you consider Working Capital implications when negotiating new business? 

Your Answer:

Somewhat well

What is a strategic project?

From our perspective, strategic projects can include a new branch, a new product or service line, a marketing campaign, etc. Start by brainstorming ideas and listing them down in a log.

Prioritising and selecting projects

Prioritise projects that will help achieve your 'Primary Metric'. For example, if your objective is to increase the average revenue per customer, opening a new branch may not align with this objective. Instead, you may want to introduce a new premium product or service at a higher price. Implement one strategic project at a time.

Risks & Rewards

Balance the potential impact of ideas and the ease of implementation against the cost of investment. Ideally, you should have multiple projects to choose from, and a framework to rate each project in terms of its relative risks & rewards.

Cost of Investment

Include the cost in monetary terms, management time, cost of funding and opportunity cost.

Measurement

Establish your targets clearly. Measure before implementing the project, during and after. And make sure that progress is measurable, it should not be something like "having happier customers!".

SECTION 3

Strategic Review & Evaluation

In this section, we discuss your Strategic Review & Evaluation Procedures.

 

Topics discussed:

  • Periodic re-examination of Goals and KPIs and in-depth performance analysis

  • Benchmarking

  • Confidence in decision making  in the areas of finance and accounting, and the potential value of the business

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Below are the questions and your responses that contributed towards your score in this section:

Question 11:

How confident are you in your decision making in the areas of Strategy and more specifically, in the areas of Finance and Accounting?

Your Answer:

Extremely confident

Question 12:

How regularly do you re-examine your Business Strategy, in including your Goals & KPIs?

Your Answer:

Semi-annually

Question 13:

How often do you benchmark your performance against competitors?

Your Answer:

Sometimes

Question 14:

How often do your finance team perform a detailed in-depth analysis of your finances to identify new sales channels, improve profits, improve efficiencies, costs savings, etc.?

Your Answer:

Rarely

Question 15:

How well do you understand the potential value of your business?

Your Answer:

Extremely well

Re-examining Goals & KPIs and performing a periodic in-depth analysis

In Section 1, we very briefly discussed Goals & KPIs. We recommend that you set time-intervals to re-visit them. There is no magic interval period. It largely depends on the type of business, industry, stage of growth, etc. We suggest a quick examination every quarter. However, if you have to change your Primary Metric every three months, this may be an indication that you have not done this right. The same principles apply to perform in-depth analysis.

Benchmarking your product or service

Set benchmarks against the competition to establish the 'correct' levels of profitability/margins, sales, cost of operations, etc. Benchmarking is quite challenging in Bahrain because of limitations on the number of small businesses in each sector, stage of development and overall availability of data. In this case, benchmark data has to be built over time using whatever data is available. An alternative would be to use data from larger economies and applying educated adjustments.

Improve the level of confidence in decisions in finance & accounting and understanding the potential value of the Business

Not every startup or small business founder requires deep finance & accounting knowledge at the outset. However, it's necessary to develop a basic understanding of accounting & finance. Over time, build confidence in this area so you can make sound strategic decisions based on financial information and enhance the value of the business.

SECTION 4

Reporting

The first three sections focused on strategy. Sections four and five examine reporting and performance analysis. Some startups and small business owners mainly view reporting as a mechanism to communicate with regulators, banks, etc. We place a great deal of focus on reporting and performance analysis, and cannot overstate the importance of periodic internal performance reporting. Beyond reporting, the quality of your performance analysis is what drives sustained profitability and growth. 

 

Section four reviews:

  • The characteristics of data and reporting

  • Periodic reporting, review meetings and analysis

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Below are the questions and your responses that contributed towards your score in this section:

Question 16:

How reliable is your data?

Your Answer:

Not so reliable

Question 17:

How soon after the period end does your finance team prepare Management Reporting?

Your Answer:

More than 3 months after the period end

Question 18:

How confident would current or potential investors be in the quality of your Management Reporting?

Your Answer:

Extremely confident

Question 19:

How soon after the period end does your finance team prepare an analysis of the performance of the business?

Your Answer:

More than 3 months after the period end

Question 20:

How soon after the period end does your management team meet to review the Management Reporting and analysis of the performance of the business?

Your Answer:

Between 15 to 30 days after the period end

Characteristics of data and reporting

Strategically collecting and analysing data is a must if you want to understand and be able to explain your business. Without data, you'll be guessing! And things will go wrong at some point.

Likely, you won't have adequate controls over the quality of data at the outset. That's normal. Over time, you should see and be able to measure improvements in quality and granularity. It's also likely that you will not need or want to use all the data generated by the business. You still need to collect, store and ensure that your data is valid. You never know when you will need this data. You will need it at some point if you continue to grow.

Periodic reporting, review meetings and analysis

The second essential point is the need to set up review procedures. Consider the following:

  • Make reporting regular. Depending on the type of business and stage of development, you should either select monthly or quarterly. Monthly is always better.

  • Standardise reporting. Data can only be analysed in a useful manner if it's comparable. Conventional methods of analysis compare performance to the previous month, quarter, year, the competition, industry benchmarks, etc.

  • Formalise review meetings. Meet with your partners or accountant and do not forget to document your analysis and meeting minutes.

SECTION 5

Performance Analysis

This section explores:

  • Revenue and profitability analysis

  • Cost structure

  • Forecasting and cashflow management

  • The actions of the competition

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Below are the questions and your responses that contributed towards your score in this section:

Question 21:

How effective is your analysis of your monthly Management Reporting such as analysis of gross and net margins, cost of sales, income by customer, etc.?

Your Answer:

Extremely effective - we're always optimising our margins

Question 22:

How accurately do you assess the reason(s) for unusual or unexpected changes in your cost structure?

Your Answer:

Somewhat accurately

Question 23:

How regularly do you re-forecast the financial performance of the business?

Your Answer:

Not so regularly

Question 24:

How integrated are your cashflow projections (fully integrated cashflow patterns can change throughout the year depending on different mixes of product and customers)?

Your Answer:

Very integrated

Question 25:

How effective is your analysis of the actions of the competition?

Your Answer:

Somewhat effective

Income statement analysis

Critically assessing results will ensure that you have a great picture of the performance of the business in the past period, and provides a roadmap for the coming period.

In previous sections, we discussed Goals and KPIs. We also mentioned the need to identify the 'One Metric' that matters most. Your Goal/Primary Metric/North-Star Metric. Whenever possible, link your Primary Metric to revenue.

You need other metrics, secondary metrics — these need to support the achievement of your primary metric. 

Correctly analysing performance will objectively tell you if you're doing great, just okay, or not so good. Nothing keeps you more realistic about how the business is doing than a bunch of numbers; they won't lie if you interpret them correctly. Performance analysis also acts as a feedback mechanism for your current strategy. For example, it will tell you if your current strategy for increasing revenue, improving margins, increasing the number of customers, etc. is working. So if you do something and things go up, that's probably good. Alternatively, if you do something and some things go down, that's probably bad.

Forecasting and cashflow management

Poor cash flow management is one of the main reasons for startup and small business failure. It involves managing and balancing cash inflows and outflows from income, expenses, receivables, payables, working capital, re-investment requirements, cost-cutting, bootstrapping, etc. So it's natural that the business is unable to survive once it runs out of money. Cashflow management also increases in complexity as the business grows. 

Traditionally, businesses kept forecasts for five years. We think five years is too long for a small business in today's world. In most cases, we support 18 months.

Also, traditionally, forecasts were kept static and updated, sometimes once a year. Today, cloud accounting can help keep forecasting dynamic and integrated. Fully integrated cashflow patterns can change throughout the year, depending on different mixes of products and customers.

Integrated forecasts can considerably improve the survival prospects of the business.

The actions of the competition

When performing your analysis, it's essential to consider macro-economics and the activities of the competition.

SECTION 6

Funding

This section looks into:

  • Raising money from family and friends

  • Borrowing from banks and raising from venture capital firms 

  • Being due diligence ready

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Below are the questions and your responses that contributed towards your score in this section:

Question 26:

How clearly have you identified and sourced your funding requirements for the next 18 months?

Your Answer:

Extremely clearly

Question 27:

How effective are you in identifying the proportion of funding that you can fund internally from the profits generated by the business?

Your Answer:

Extremely effective

Question 28:

How confident are you in your ability to secure sources of finance (friends & family, angel investors, bank or venture capital funding) to fund the business when required?

Your Answer:

Somewhat confident

Question 29:

How would you describe the terms and pricing of your current banking facilities?

Your Answer:

Not applicable

Question 30:

How prepared is the business for any potential due diligence examination?

Your Answer:

Extremely prepared

Raising money from family and friends 

Many entrepreneurs take funds from family and friends. Mixing personal relationships and money can be risky, especially if things don't go as planned and the business loses money.

 

That said, family and friends are in an essential source of funding for startups and small businesses. Just make sure you follow good practices when raising this type of funding:

  • If you pitch family and friends, and they show interest, make sure the interest is genuine and serious. You don't want to count on funds being available, and when you come to drawdown, you discover that the interest was not serious

  • Only accept funds from people who can afford to lose that money

  • Ensure that people investing are aware that their investment will not give them a say into how you run the company

Banks and venture capital firms

There are significant differences between raising money from banks as compared to venture capital firms. For this report, we're providing a general overview of common considerations. Institutional fund providers/VCs:

  • Get a higher level of comfort if you can talk finance and accounting

  • Need information backed by data, not based on 'feelings'. They do not entirely discount educated assumptions; however, it's tough to argue against hard data

  • Need periodic reporting of results

 

Additional considerations if you raise funds successfully:

  • Be ready to be held accountable as CEO/MD

  • Make sure you pay yourself a fair salary while keeping in mind the liquidity requirements of the company

Being due diligence ready

Your level of confidence in this area provides a good indication of your belief in your record-keeping. Being due diligence ready on short notice means you can pass an audit, due diligence, answer questions about the company comfortably, and back-up your future plans with data.

SECTION 7

Other

This section looks into:

  • The efficiency of operation and delegation of authority & responsibility

  • Corporate governance

  • Risk Management

  • External audit process

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Below are the questions and your responses that contributed towards your score in this section:

Question 31:

How dependent is the business on the CEO/Owner for management of the routine daily business operations?

Your Answer:

Extremely dependent

Question 32:

Would you say that staff are clear on the level of authority they have when making decisions on behalf of the business?

Your Answer:

Somewhat clear

Question 33:

How confident would your current or potential investors be in your corporate governance structure?

Your Answer:

Somewhat confident

Question 34:

How regularly do you assess the external and internal risks facing the business?

Your Answer:

Very regularly

Question 35:

How effective is your external audit process?

Your Answer:

Not so effective

The efficiency of operation and delegation of authority & responsibility

At the outset, the business will likely depend on the owner/CEO for management of business operations. For obvious reasons, this creates constant pressure on one person. Also, a company that largely depends on the CEO has a lower valuation. We recommend having a plan to reduce this dependence over-time. 

The second point is team building. Its widely accepted that successfully building a team of trustworthy experts is one of the top three reasons for startup success. Many think that this is too difficult to achieve. We also believe it's tough but deem its necessary. We highly recommend outsourcing non-core activities such as marketing, IT infrastructure, accounting, etc.

Corporate governance

Investopedia defines Corporate Governance as:

"Corporate governance is the system of rules, practices, and processes by which a firm is directed and controlled. Corporate governance essentially involves balancing the interests of a company's many stakeholders, such as shareholders, senior management executives, customers, suppliers, financiers, the government, and the community. Since corporate governance also provides the framework for attaining a company's objectives, it encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure."

 

That is too complicated for an early-stage startup or a small business. From our perspective, we should:

  • Avoid commingling of company and owner funds

  • Maintain a separate owner and company bank accounts

  • If there is more than one owner:

      • Avoid situations which could cause a conflict of interest

      • Introduce segregation of duties

Risk Management

Our assessment questionnaire only has a single question covering both internal and external risks. Risk management certainly needs more considerable attention. A startup or small business will likely have to accept higher levels of risk to grow. General considerations:

  • Possibly the most important risk to manage (as a startup or small business) is your personal liability. Ensure that you select a legal structure that safeguards your personal assets

  • as the business grows, we recommend that:

      • you develop a framework to identify and evaluate risks and segregate into internal and external risks

      • be aware of common warning signs of risk for a small business

Do not attempt to eliminate all risks. Risk acceptance is a valid risk management strategy. You cannot grow if you don't accept risks. However, always balance the risks and rewards of strategic projects.

External audit process

A smooth external audit process is a strong indication that your processes are effective. Investors and banks get much comfort from the external audit process. Common considerations:

  • Frequently changing your external auditor is a negative sign

  • The credential of your external auditor matter

  • It could be a negative sign if the external audit takes a long time to complete

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