Saturday, 23 September 2017

Is the price right?

Getting the price right, or setting price at a level which provides good value to the customer and profit for the business is one of the most important business decisions. It is an area that some businesses give little thought to however and as a result they get by on poor margins and struggle to make ends meet.

Steve Ballmer, ex CEO of IBM puts it more starkly, 'This thing called ‘price’ is really, really important. I still think that a lot of people under-think it through. You have a lot of companies that start and the only difference between the ones that succeed and fail is that one figured out how to make money, because they were deep-in thinking through the revenue, price, and business model. I think that’s under-attended to generally'

So what is the right price?

Ron Baker, Value Pricing expert argues it should be based on value provided to the customer rather than 'accounting' methods like chargeable hours or 'cost plus'. In his book, 'The firm of the future' he gives an example of an accountant who helps a wealthy client sell their business. He is at the client's beck and call for many weeks, uses his knowledge and lifetime experience to deliver an exceptional deal and then he is very pleased with himself when he eventually presents the client with a quite a large bill for hours worked. The client is even more pleased  because in the context of the business sale the fees charged were minuscule. If the accountant had charged a fee based on value delivered, his client would have still been very happy and he would have been able to charge significantly more than the self-limiting hourly rate. The same principle  applies to tradespeople who often limit their pricing with day rates when the value delivered is often significantly higher.

Let's be clear. This is not about overcharging. This is about thinking carefully about the value provided, agreeing terms in advance and then delivering on your promises.

'My business is different' you might say. 'It's very competitive, the price is set by the market'. This can be true of commodity products or services. If you are trapped in this mindset it is not a nice place to be. The challenge I think is try to differentiate your product or service offering so that you provide some unique value and are not competing solely on price.

All accountants know that an increase in price feeds straight through to the bottom line. It is additional profit with no energy expended other than making the decision and presenting it to your customers. A decrease in costs also increases profit (to  a lesser degree) but often there are consequences - you need to give something up, improve productivity, work with another supplier etc. Pricing is the biggest lever for increasing profits.

So I don't have all the answers but I do know that getting the price right is critical for business success. As Steve Ballmer says business owners need to think it through and keep thinking it through. It can be the difference between success and just muddling through

www.base52.co.uk

Sunday, 20 August 2017

Ugh! Post holiday email - my low tech tips for getting it done

Holidays are great. Time to unwind, relax, spend time with loved ones and forget about work for a while. Getting back to work is often a challenge with the build up of email being one of the issues to cope with.

I've developed a bit of a system for dealing with the email build up which kind of works for me and I thought it might be useful to share. It's fairly low tech and I'm sure that there are more sophisticated ways of doing a similar thing.

For what it's worth here are my 5 D's for clearing the backlog:

Diary time

Allow some time on your first day back to start to clear the backlog. If you can book this in your diary before you go away, that's ideal. You can then spend some uninterrupted time working through your emails. The sooner it's done, the sooner you will feel 'caught up' and be able to get back into your stride

Delete

Getting rid of any SPAM, things that don't require action etc is a positive first step. It's a good idea to unsubscribe from mailing lists you are not interested in and mark unwelcome email to go straight to junk in future.

Delegate

If you are lucky enough to have people working for you, maybe there are things which can be delegated. You can either forward the email with a note for action or print/save in a folder for next time you have an opportunity to discuss it with the person you are delegating to. Even if you don't have people working for you there may be emails you need to pass on for someone else to deal with or perhaps refer upwards to your boss

Deal with now

If you can respond to an email easily, straight away, it's best to get it done. Maybe set a reminder to follow up if a response is required from the recipient. It's off your list for now

Deal with later

For chunkier jobs you can't respond to straight away add these to your work list or direct to your calendar to deal with later. You might print or save the email as a reference for when you start the work. You might also send a holding email to say you have noted the contents and will respond in due course. You can then tackle this at a later date with a clear head.

That's it! I did say it was low tech

With focussed effort I find I can usually clear the mountain a lot faster than seemed possible at first glance. I've then got the larger tasks scheduled and can work through these over the next few days.

It's still not easy leaving the holiday mood behind but this simple system works for me and after a week or two I'm usually back in the normal routine and hopefully not feeling swamped.

Almost time to start thinking about the next holiday...

www.base52.co.uk

Saturday, 12 August 2017

How many businesses do you need?

Running a business can be pretty intense. But very now and then, there is a lull. Maybe it's a summertime thing? The volume of emails goes down, the phone is not ringing quite so much, there are no major issues worrying you. What next?

My tendency over the years has been to dabble with something new. Kick off that new business idea I've been thinking about but have not had the time or energy to do anything about. Being an optimist, I inevitably focus on the upside and getting started and think less about what is required to keep things going. So let's go for it. This is going to be big! 

But with me at least, it never quite turns out like that.

Inevitably the lull in your core business ends. Your intensity returns, the phone starts ringing again, issues crop up, you get stuck in and the new idea has to take second fiddle. It kind of bubbles along in the background, sometimes for several years but never reaches its potential. Eventually you kill it. It's become a drain and it's time to concentrate exclusively on the main business.

There are entrepreneurs who make a success out of starting several business and running them simultaneously. Nigel Botterill famously built up  5 (probably more now) £1m businesses within a few years. Felix Denis, the late publishing billionaire, used to start new 'baskets' for his new ideas and run these alongside his core business. Some of our clients too have had modest success with running multiple businesses side by side. 

So it might be just a failing in me that I've not been able to make this work. These days, when I get that new idea and rush of enthusiasm, I stop and think a bit more before diving in. Have I really got time for this? If I put the same effort into my main business would that deliver more benefit? 

Let me tell you about my new idea for a great on-line shop though...

www.base52.co.uk



Sunday, 6 August 2017

A tale of two sales

Last year my wife and I had the holiday of a lifetime in India. It was a wonderful experience with fantastic monuments, history and culture, great food and the warm and friendly people.

We came back with lots of stuff we hadn't really intended to buy due in no small measure to the local merchants' talent for selling.

The format usually went something like this. We would have a morning's sightseeing with a local guide. On the way home he would invite us to drop in at a local merchant - jeweller, potter, fabric trader etc. Let's use the jewellers as an example but the experience was similar, whatever the trade, 'Would you like to visit a local jewellers? The owners are very nice and they have a workshop on the premises which they will be happy to show you'. 'Why not?, we thought. There was no 'hard sell', we were free to say no but we usually opted to have a look around. We were greeted by the owner and several others at the entrance and warmly welcomed. Masala tea was offered and we were invited to look around the workshop. We had a personal tour and were shown the journey from raw gem stones, through cutting to designing and manufacture of the jewellery. Nothing was too much trouble. Lo and behold at the end of the tour we ended up in the jewellery shop. More tea was brought in and we were asked about our holiday so far. 'Would we like to see some jewellery?' No one asked us to buy anything but somehow we just did. Not things we needed or had planned to buy but presents and mementos from an enjoyable trip.

Let's contrast this with a trip to a carpet shop at home this weekend. We are in the process of redecorating our house. My wife has thought very carefully about the decor, we just needed the carpets and wanted advice on what to buy. We were ready to be sold to. We had a budget (well sort of) and a deadline. A couple of sales people were sitting down as we entered. We were welcomed and shown a few samples and basically left to potter around and well...leave. We had lots more questions, we wanted some ideas, some input, to let us know what was possible. A cup of tea and a chat would have been nice.

Ok so it's a different situation but I think illustrates a point. In India we had not intended to buy but were shown the possibilities and buying was made easy. So we bought. In the carpet shop we were ready to spend. We had the money ready and wanted help. The kind of help we wanted wasn't forthcoming so we didn't buy.

Off to a new carpet shop today so will see how that one goes...

www.base52.co.uk

Saturday, 1 July 2017

A case for outsourcing

In the early days of running a business, often the business owner does a bit of everything. Looking after customers, sure, but doing the accounts, paying the bills, fixing the computer, cleaning up, sorting out problems and anything else that comes along too. The phrase, 'Chief cook and bottle washer' describes it well. From the interesting and important stuff to the plain boring and mundane, it all needs to get done...somehow.

As the business grows the business owner might start to bring in help. They then need to decide what tasks to let go of and what they need to keep hold of. Michael Gerber's, 'E-Myth' describes this dilemma well. He advocates that over time the business owner should delegate the 'technical' stuff and in due course, the 'managerial' stuff and end up being the entrepreneur who develops and guides the business. It's a difficult journey and many don't stay the course. Many stay stuck in the mire of dealing with technical matters, often where they are not an expert and fail to focus on developing their businesses.

A good solution can be outsourcing. Outsourcing is passing responsibility for a set of tasks to an external party, usually a specialist in this line of work. There are many advantages but these include:

  • It's often cheaper than employing someone to do this work for you as you only pay for the support you need
  • They are are experts and have the knowledge and resources to do the work better than you can
  • It's scaleable - as you grow or contract you can adjust your level of support accordingly
  • It leaves you to focus on the entrepreneurial stuff


 It's almost a no-brainer but I see many businesses of a reasonable size who deal with their own IT (if something breaks they get someone in to fix it), have no HR back up, do their own marketing (when they get time) and yes, do their own bookkeeping, payroll and VAT, not always in the most effective way

Since starting Base52 we made an early decision to outsource IT and HR support, website maintenance and aspects of marketing. I've never regretted this. It's a monthly overhead but I feel it is an essential cost of 'doing business'. Similarly we offer an outsourced accounting service to many of our clients covering bookkeeping, VAT, management accounts, payroll and well as year need compliance. I believe this arrangement works very well and many of these clients have stayed with us for many years on their business growth journey. 



I found this quote from a chap called Alphonso Jackson, 'The other part of outsourcing is this: it simply says where the work can be done outside better than it can be done inside, we should do it'. 

I think that's pretty good. Cost is also a factor of course (you'd expect an accountant to say that) but if it's affordable, I'm a big fan.

Monday, 26 June 2017

A lesson in value

It sounds rather grand but for the last few years I have hired someone to help with the gardening. It's never been my favourite thing, more a chore than a hobby, so getting some help to do the pruning and heavy lifting seems to make good sense.

The chap I have been working with is his own man and he works around his own schedule. I've tried to book him for specific times in advance but he prefers to keep it more flexible. So it turns out that when I need him he's not always available and when I don't need him (in the depths of winter) I get a text asking if we have any work.

That said, he knows his plants and generally his work is tidy and he's reasonably efficient. His hourly rate is quite high but all in all, he is reasonable value for money.

I was walking to town the other day and saw a young chap with a hedge trimmer attacking my neighbour's privet. I stopped for a chat and found out he charged half the hourly rate of my man. This seemed too good to miss so as the garden needed a tidy up I arranged for the young man to come along and have a look. We had a chat about what needed doing and arranged a time.

Big mistake! Turns out this chap is basically a 'man with a lopper' who appears to know nothing about plants. He has butchered the Rosemary at the side of our steps so it has gone from being a luxuriant shrub to a misshapen bunch of leafless twigs. He carved all the flowering heads off the Buddleia to leave a sorry looking clump of withered leaves and he left when the bin was full of debris so one half of the garden was untouched and half was left scarred by his indiscriminate attack.

As the saying goes, 'You get what you pay for'. My new guy was cheap, but an unmitigated disaster. He sent me a text asking if I would like him to come round and finish the other half. I have gently said that I have this covered

So I am back with my somewhat inflexible but knowledgeable and expensive original gardener. I rather sheepishly told him about my trial with the other chap and he took a little too much pleasure in letting me know what a mess he had made. I think I heard him whistling and chortling while he went about his work.

So a few lessons learned there but the main one being that 'cheap' isn't necessarily good value. I will take a little more care next time I think something is too good to miss.

www.base52.co.uk

Saturday, 3 June 2017

VAT Flat Rate Scheme - are you getting the calculation right?

I think it's well known now that the VAT Flat Rate scheme changed with effect from 1 April this year.

The government introduced a new concept of 'Limited cost traders' (LCTs) which have expenditure on 'goods' of less than 2%.

For these LCTs, if they remain on the Flat Rate Scheme they need to use a new Flat Rate of 16.5%. Typically, many will have been management or IT consultants with 'old' flat rates of 14% or 14.5% respectively.

Ok, so that's an increase but it's still worthwhile, right? 16.5% is still less than 20% so it's still possible to make a 'profit' on the scheme? In fact, this is wrong.

Here's the maths:

VAT charged to customers on a net sale of £100. £100 x 20% = £20

VAT payable to HMRC at 16.5% Flat Rate. £120 x 16.5% = £19.80

The key thing here is the Flat Rate percentage is applied to the VAT inclusive amount. 

There is therefore virtually no benefit in remaining on the scheme as an LCT and we have advised all our clients to withdraw and change to standard VAT accounting. Even with very modest expenses which incur VAT, they are likely to be better off if they make this change

I have a suspicion that some businesses are getting this calculation wrong and still feel they gain a benefit using the 16.5% Flat Rate as an LCT. I have no hard evidence for this other than conversations I have had with several business owners who believed the new Flat Rate should be applied to net sales.


Misinterpreting the rules will not be seen as a reasonable excuse by HMRC if the VAT declared and paid is incorrect. 

So please check your calculations. The devil is in the detail and there's a big difference between net and gross sales.