This is not going to be another blog on the momentous events of 2016.  Irrespective of your politics and global outlook I think we have heard enough analysis for now.

A couple of year's back I read a book by Donald Rumsfeld, a fascination read.  His now infamous quote "There are known knowns.  These are things we know that we know.  There are also known unknowns. That is to say, there are things that we know we don't know.  But there are also unknown unknowns.  There are things we don't know we don't know."  Given the year that is 2016 his last sentence seems to me to be most appropriate as we head in to 2017.

For those of us in business, expecting the unexpected is what we try and allow for.  Yes we have our vision, which shapes our strategy which demands a plan and ends up with a budget.  But how many forecasts can we end up doing during a year as reality kicks in.

So 2016, from a trading perspective, has been uncertain and in some cases difficult.  It has also had many successes.  Some decisions seem to have been on permanent hold and yet trading has continued and if the statistics are correct we have seen some modest growth in GDP.  For retail, a bellwether apparently of how we are all doing, 2016 has been bumpy but October saw the highest lift in retail spend, up 7.4% on the same time last year.  And yet somehow the general sentiment is 'nervous', 'uncertain', 'bumpy road ahead' with plenty to challenge our ability to plan and forecast.

The Autumn statement, with its various incentives to boost confidence, has been met with the usual mixed reviews but those of us in business will probably feel some effort is being made to improve the trading conditions.  We can be in no doubt that the dept burden we carry as a country is not going to ease any time soon.  If anything we have all been primed to expect it to increase.  That's one less unknown.

As we look ahead to 2017 our destiny lies entirely in our own hands.  In a sector I work closely with, retail, digital disruption will continue unabated.  Consumers will continue to shop and the wheels of the economy will continue to turn.  More than ever though we will need to watch out for the 'the unknown unknowns'.  As an Accountant by profession one thing I do know is that I will need to draw even more closely on my ability to plan, monitor and react.  Managing cash, understanding the risks as clearly as possible and being ready to alter course but not overall direction will be more important than ever.

It seems clear that inflation is going to rise, 2.9% is the latest estimate of what it is likely to reach, and all businesses will be under pressure with their wage bills.  Not only will we have to see how increases can be funded in basic pay but also we have the Workforce Pension Scheme requiring increased employer contributions over the coming years.  Plenty to keep us focused.

Irrespective of Brexit, Trump and possibly Farrage, the opportunities will still be there.  We just need to keep our minds open and seize them when they present themselves.

This time next year will be a fascinating reflection!

Many of you may have seen on linkedin the image showing a broken diesel engine from a shop and the story attached to it about price. In brief the engineer who fixed it spent about ten minutes identifying the right place to hit the engine with this hamer but charged $10,000 for the repair. The time cost $40, the knowledge of where to strike the engine $9,960.

Pricing is a complex subject that can appear quite simple. The value that is provided by the produce or service is largely the result of financial and emotional factors specific to the individual and the market. This can often be very different to the vendor's perception. To some the value may seem very reasonable and to others it may seem very hard to justify.

In an ideal world the price should be equal to the value that an individual would be prepared to pay. Individual pricing has hitherto been beyond most organisations and runs the risk of alienating the customer when they find out they have paid a lot more than the next person. The inevitable result is published price lists and 'recommended retail price' or RRP.

However nowadays pricing tools and data analytics are providing businesses with the ability to have much more sophisticated price models that build in premiums for convenience, spikes in demand and will trigger discounts to avoid over stocking for example. Pretty much every eventuality can now be factored in to optimise profit. Retailers and airlines are just two examples where this 'time of day' pricing is now the norm.

Whilst price might be very volatile a business should be able to estimate the cost of delivery accurately. The difference between the two is the all important profit that the business can expect to make and which it must seek to optimise on each sale. Managing the profit is inextricably tied up with managing the price. In the services world where it is people's time and intellectual property that is being sold keeping control of the 'creep' on projects is also vital. In the manufacturing world controlling production quality, maximising capacity and avoiding wastage is vital.

What is 'creep'? Creep occurs where the detail of what is to be delivered changes as a project progresses. Most contractual arrangements provide for change control that will identify when something alters from the originally agreed schedule of work and an additional charge can and should be made. Failure to charge for any changes directly hits the profit and devalues the price for the service.

Some headline points to consider in establishing the price for a product or service.

• Know your costs and have a clear cost model for each of your products and services.
• Understand your competitors pricing in the marketplace and know how your price can be justified (or not !!).
• Use your cost structure to enable you to apply your ideal mark up.
• Be able to calculate your margin on each product line or line of business.
• Take account of dynamic pricing  opportunities such as time of day and desired stock turnover.
• Allow your pricing to reflect value based factors such as brand value, fashion, seasonality.

For many businesses there is the benefit of history and experience to draw on. Increasing disruption in markets today, including the digital disruption such as online comparison sites and e procurement, means that sometimes the history is of little use and you will need to rely on specific tactics to suit the current circumstances and immediate opportunities. Aiming high and leaving room to manoeuvre is important but also knowing when to stop discounting is also a key judgement. Business at any price is not usually business worth having unless you have a really sound reason for investing in a customer.

Setting your guiding principles for pricing will be unique to your business. Identifying what differentiates you from the competition and reflecting that in your pricing and ultimately your profitability is a process that never stops. As certain as we are that night follows day so to is the job of managing price one of life's inescapable tasks in striving for business success.

The backdrop for managing online security is the ever growing inventiveness and success of the criminal world invading the corporate data world. 74% of businesses reported a security breach in 2015.

In many companies time to manage the IT infrastructure, let alone the specific aspects of cyber security, is under constant pressure. As a result there is a risk that managing this area slips down the priority list. The following steps form a simple, but not exhaustive, checklist that should ideally reviewed for compliance every quarter.

• Make sure the Board owns the responsibility for Cyber security. Someone should have the responsibility for keeping a view of all the risks and how they can be mitigated. Included in this is knowing which systems and data are critical to the continuity of the business and therefore properly protected.

 

• Management and staff awareness. Everyone in the business should be aware why security matters and what their individual responsibility is to ensure the business is safeguarded as well as possible. A clear cyber security policy included in the staff handbook and appropriately addressed in contracts of employment. The risks are not only just technical but also as simple as trying to dupe and trick staff in to divulging key information.

 

• Manage and control staff access to devices and content. Very few people need access to all areas of the IT systems and data. Keep individual access to a minimum without compromising work performance. Additional access can always be added as necessary on a temporary or permanent basis. Reviewing areas of access and user names and passwords regularly will help prevent unnecessary access creeping through the organisation.

 

• Install software updates regularly. Operating systems and software applications are regularly updated. When patches are issued to fix bugs this can often be to close a gap in the security capability. These are often updated automatically but often devices can be left without an update, especially portable devices. Routine checking should be done on every device.

 

•  Protect against viruses. Individual device and network protection with specific malware detection software is a prerequisite. As with other business applications these need to be kept up to date with the latest releases which aim to pick up the new threats.  Protection from outside threats by a firewall that controls access to your network will compliment individual machine protection.

 

• Consider security beyond the office. Team members working away from the office, moving between offices and accessing data remotely in the cloud are all examples of how the risks extend beyond the immediate office environment. Access to sensitive data through encrypted areas and using two factor authentication can all help mitigate risk.

 

• Plan for the worst Having a disaster recovery plan is essential for all aspects of the business and none more so than in the area of data security. Clear lines of responsibility and decision making in a security breach is critical as is knowing who and how to access essential specialist resources. Some areas of the business will be identifies as being more critical than others. These should be clearly documented and the response proportionate to the level of breach.

 

• Don’t forget peripherals As well as the core devices in daily use, external hard drives, USB sticks and DVD drives can all pose a risk to the security of the IT systems and data. Clear guidance and policy regarding the use of such items both in and away from office locations and in terms of the data on these devices should be in place.

 

• Penetration testing and records Tools and services are available that can attempt to breach your systems and data in a controlled and safe way. Penetration testing can add a layer of independent validation to the level of security or vulnerability to your organisation. Good record keeping of users, software updates, layers of access can all help in the event of a breach and narrowing down the areas of exposure.

 

Authors note: this article is not intended as a comprehensive and exhaustive guide and each organisation must review its own individual circumstances and decide what is suitable. No guarantee of security is given in providing this guidance.

Some useful links:

Information Commissioners Office – ico.org.uk

Get safe Online – Getsafeonline.org/business

In any new role it is important to hit the ground running in the first few months. What should the priorities be for an FD or CFO?

Forge strong working relationships from the start
Building trust with your team, your stakeholders and your new managers has to start from day one. Of course you can’t meet everyone straight away and depending on the size of your organisation there will be many people you will only encounter on an infrequent basis, if ever. Similarly you won’t get to know or understand every system and neither should you need to.

Identify and harness key skills within the team
When meeting your team you need to know pretty quickly what everyone does and who the sector experts are for the various disciplines under your control.

Pin-point problem areas and agree a road-map of reform
Once you know what everyone does it is important to then get a clear grasp of how they serve their customers and stakeholders. This insight comes from the functions that finance have to work with, which is pretty much every part of the business, as much as it comes from your team. Building this picture at an early stage will help identify how cohesive the whole organisation is around the stated strategic objectives. Areas of disconnect should be prioritised and a plan of action formed to close any gaps.

Set clear strategic direction for effective transformation
There will always be things you want to change. Some will become apparent very quickly, some may have been alerted to you before you started and often you will quickly receive the benefit of many views on what could or should be done differently. Use the clarity of the corporate strategic objectives to filter the changes you may need to make and work out a plan for change.

Seal an early deal
This first business quarter should have a quick win that will show you and your team are on top of their jobs. This will help build trust and make it easier to create a stepping stone to help the business achieve success.

Get to grips with the numbers
Around all the introductions and getting to know the business the underlying state of the business must be grasped. Understand the cash, the profitability and the risks and how they are mitigated. Make sure you know the state of the balance sheet and that there are no lurking ‘time bombs’. You will have gathered a lot of information in your due diligence in advance of day one but now is your opportunity to get under the bonnet and establish a clear position. This will also help build trust and confidence and provide a solid knowledge base from which to contribute.

Analyse performance regularly and adapt strategy when necessary
Finally allow time for reflection and review and be prepared to adjust your plans and focus.

Corporate Governance codes should avoid becoming a ‘tick- box’ exercise and encourage a longer term view of business performance. A recent new report launched at the European Commission in Brussels, ‘Corporate governance, compliance and monitoring systems across the EU’ reviews how the ‘comply or explain’ principle is being applied across the EU and the potential for the code to drive further improvements in corporate governance.

‘Comply or explain’ can contribute to sustainable success if three conditions are fulfilled:

1. Boards should be willing to depart from a particular part of their code, where necessary, rather than taking the easy route and complying rather than explaining. Larger listed companies in particular alas seem to be under pressure to comply rather than risk the annoyance of their investors, and particularly the proxy agencies, by departing from a particular code provision.

2. National codes must be focused on encouraging businesses to achieve long-term sustainable success rather than being rule-based in a way which permits compliance whilst adopting a short-term profit maximisation approach.

3. Thirdly and most importantly, boards and the investors in their business must be committed to the benefits of striving for sustainable success. It is by no means an easy route: it needs the right ‘tone at the top’ and for business leaders to stick to it even when there are short term challenges. A compelling and lasting purpose and a long-term strategy linked to comprehensive risk assessments should drive decision-making in the business.

The issue of the use of explanations is covered in depth. The authors of the report believe that a well-respected monitoring regime would lead to better acceptance of ‘explanations’ and that the company secretary could have an important part to play. As part of their role in managing relationships with investors, company secretaries could encourage shareholders to understand explanations and be comfortable with them.

Higher quality, more standardised explanations would also help investors to accept the value of deviating from the code where appropriate. While the decision to comply or explain must be left with the individual company, and the code is a matter for each country, the quality of explanations could become more standardised and actively monitored, with benefits.

In an ever changing and challenging business environment, staff are increasingly required to adapt and change their duties within their basic responsibilities and sometimes take on different duties.

Finance teams are always exposed to changes in every part of the business. They are a vital business function that works across the whole business. Gone are the days when accounting was just about keeping the books and reporting the result. Nowadays they are playing a pivotal role in supporting change within enterprises and being catalysts for change.

In approaching any change management focusing on the specifics of each part of the business and the individuals in it has longer term benefits than a one size fits all approach.

Efficient Change Management

It is essential that change is managed effectively. Failure to do so can impact upon day to day trading performance and increase exposure to unforeseen risks whilst attention is focused inwards on change. Engaging the finance function from the outset and keeping them involved in the process is imperative at the same time as enhancing their skills as necessary so they too can change in line with the business objectives.

The Executive and Finance working together

Finance can often be the catalyst and instigator of change. But ultimately change must be owned by the executive team. The executive team must define the vision, set the objectives and communicate the plan to all parts of the business. Finance, with its connection to all parts of the business, should be a central conduit through which change is managed and monitored.

Monitoring the progress of change is a vital component and retaining the flexibility to tune and adjust plans is a necessary feature of changing in today’s environment. No matter how well planned a business may think it is there are always factors outside of its control that it must be able to react to.

Fostering strong links with finance across the executive and all the different functions so that finance is part of the business and not a discipline on its own will help change become a smooth and complimentary set of tasks and not a disruptive distraction.

A strong finance function within any business should be able to pass the following 4 key tests. The finance function should be more a leader in the performance of a business rather than a passive scorecard after the event.

Test 1.

The finance function should instill confidence in the ability of the business to forecast and plan.
Forward visibility on business performance and cash management are 2 key criteria here. Decision making should be informed and proactive in what is an unpredictable trading environment.

Test 2.

There should be solid working relationship with all stakeholders. Finance cannot work in isolation of the rest of the business. There should be active and regular involvement with all parts of the business and not just monthly management account reviews. Do the finance team understand the business drivers and does the business understand how finance can support all the business objectives?

Test 3.
Finance should be engaged in all the financial and commercial aspects of existing and future contracts.

This is often not the case and finance can be the last area to learn what contractual arrangements have been entered in to. The quality of all deals must meet the business requirements and be well controlled and regularly reviewed.

Test 4.
Establish and align the Board to a single medium term strategic plan.

This is the foundation for a detailed business plan and will help provide the focus of activity to achieve growth.

There is always potential here for some contention with different expectations and different shareholder objectives.

A proactive and confident finance function should be well placed to maintain a consensus, report on performance objectively and keep the Board and shareholders aligned.

Score your business and see where opportunity for improvement might exist.