Friday, 29 May 2020

Being unique beats being efficient in small business

There’s a good rule in business, especially small business, not to make your product or service a commodity.

Adam Davidson. makes this one of his 7 rules for thriving in the 21st Century in his book, 'The Passion Economy'.

Another way of expressing this is to ensure that you differentiate yourself from your competitors by more than just having the lowest price.

In a market where there is aggressive price competition lies a never-ending spiral of efficiency gains, cost cutting and wafer-thin margins.

There will always be a competitor who has lowers costs, uses technology better or gets better economies of scale. It’s a dog-eat-dog world and only the biggest, hungriest dogs survive.

So that’s great in theory but if you provide bookkeeping services or sell pizza or make widgets of some description, how can you stop them being commodities?

Bookkeeping is bookkeeping, right?

Well, not necessarily. 

At its most basic level, bookkeeping is just posting invoices, matching bank payments and receipts, maintaining sales and purchase ledgers and reconciling bank accounts. 

There are lots of possible variations in how this service is delivered - at client’s premises or remotely, using the latest technology or ‘old school’ manual ledgers, processing monthly or quarterly or daily, ‘real-time’ processing, with add on management information (what do the figures mean?) or without, digital dashboard or paper reports.

It is these variations which move the service on from being a commodity to a unique service which is valued by your unique group of customers.

If you can find your point of difference and find customers who place a higher value on this, you can move out of the commodity world to a place where there is less of a need to compete solely on price. 

The extra bits you do which are unique to you are harder for your competitors to copy so you can focus on client care and improving your offering, rather than the relentless pursuit of efficiency.

So in big commodity businesses, the focus may be on low prices, cost savings and productivity gains. 

For small businesses, I’d argue that what’s more important is making your product or service unique and for your customers to recognise the extra value which you provide in the price they are willing to pay.

Friday, 22 May 2020

Zooming towards a plan

I had some Zoom calls with clients this week about personal financial planning.

I’m joined at the meetings by an Independent Financial Advisor (IFA). He’s the expert and runs the meetings and I observe and occasionally chip in if the conversation strays into my realm of a client’s business interests or tax matters.

My IFA buddy and I have been doing these meetings together for a few years now. What strikes me is that surprisingly few people plan their finances and align the management of these with the their personal life goals.

Stuff just tends to happen. 

We have various jobs and accumulate several pensions. Maybe we invest in a buy to let property because it seemed like a good opportunity at the time or we inherited mum and dad’s house and decided to let it out. We have a few ISAs and maybe some premium bonds. We were made redundant from our last job and started the consulting business. We still have a hefty mortgage on the family home. 

And we don’t have a plan.

This is a typical scenario for a reasonably ‘successful’ person in their 50s. They have a patchwork of assets, active and potential income streams but they are not joined together into a coherent strategy.

Often its at this stage that people will start to think they need a plan. 

Maybe they’d like to retire and they don’t know if they can afford it. Maybe they want to help the kids out now and leave them a reasonable inheritance. Maybe they just want to travel the world and enjoy life when they still can.

This is where a good IFA can really add value by pulling all the strands together and helping to construct a plan. I’ve seen cases where an advisor has been able to present options which individuals had not considered or thought would be unrealistic. 

In short, a good plan can be transformational. It can bring clarity, open up new horizons and turn possibilities into realities.

Not everyone is ready to commit to a plan of course and many people will leave our meetings still undecided and will carry on as before. 

An exploratory meeting can be a great way of unblocking the inertia. An external expert looking at your situation and putting forward some options you may not have considered can be a catalyst for change.

That change, in the context of a plan which can then be implemented, can be the difference between muddling through and living life as you really want to.

Saturday, 16 May 2020

Looking for the positives

As has been said may times we are living in unprecedented times.

Much of the impact is negative - on lives, livelihoods and on mental health. We’ve all witnessed positive aspects with examples like the commitment of NHS staff and other key workers, a greater sense of community and more acts of kindness.

Many businesses continue to struggle and there is a long way to go before they can be sure of their longer term survival.

In our business too, we have faced (and are facing) challenges but there are some positive aspects which will stay with us when the immediate impact of the pandemic has passed.

I’ve been reflecting on these and here are a few:

Valuing the team

I’ve always recognised that we have a talented team. This crisis has just reinforced to me how brilliant they all are. Coping with the challenges of moving very quickly to working remotely, juggling personal lives and home schooling and doing their best to deliver for our clients, despite all the difficulties.
Embracing new technology

The enforced change has meant that we have all had to adapt very quickly to using technology like video conferencing and cloud software applications. Face to face meetings have their place but most of us realise we can have a productive meeting on-line now without having a rush hour journey in busy traffic. We can also successfully maintain a client’s books remotely and have a conversation with them about the results, without resorting to the post or having a meeting in the office.

Client relationships

The crisis has meant we have had to work intensively with many clients to help them access Government support in the form of grants, tax deferrals and loans. I believe this support and the sense that, ‘We are in this together’ has strengthened our relationships and the impact will last beyond the pandemic.

Working differently

We have all had to adapt to new ways of working. Although I miss my colleagues and the daily interaction at the office, I find I’m well-suited to working from home. I have more control over what I do and when and with less interruptions. Work colleagues have adapted too, with those home schooling or fitting in study for exams around work adjusting their hours and work schedules to suit. I can see us operating more of a hybrid system in the future with a mix of office and home working.

New markets

Although most of our clients are located close to our office we have always attracted clients from further afield. Often this has been by word of mouth or by a chance encounter on-line. I see this trend continuing now we are even clearer that we can provide a first-rate service remotely and we can easily engage with prospective clients via Zoom etc.

Freedom for the boss

I’ve been trying to gain more personal freedom from the ‘day to day’ routine of running the business for some years now. Not to do nothing, but to have space to think creatively, be more strategic, do what business owners and managers should do more of. I’ve had limited success. I’ve still had that ‘guilt’ thing that if I’m not in the office, I’m not really working. I think that’s changed. I think I know and the team know that things can function perfectly well (probably better) without me being in the office very day.

So some positives are emerging from a crazy and turbulent time.

I hope you find some positives too or maybe some of these things resonate with you?

Sunday, 3 May 2020

Bouncing back with a Bounce Back loan?

The Government’s Coronavirus financial support measures have broadly involved grants and loans.

Grants to support job retention by furloughing employees, grants for business rates support and grants for the self-employed.

Loans in the form of tax deferrals, the Coronavirus Business Interruption Loan Scheme (CBILS) and the recently announced, Bounce Back Loan Scheme (BBLS).

Grants are ‘free money’. They don’t have to be paid back so the decision to take one, if needed, is a ‘no-brainer’. In accounting terms it is treated as income in the profit & loss account and is taxable. It would be good practice to spread the income over several months in the accounts over the period of need, rather than including it all in the month of receipt.

So what about loans?

Again, tax deferrals are  worth doing. They are interest-free and allow you to pay certain taxes at a later date. In these uncertain times, that provides a bit of contingency. The tax deferred should show as a liability on your balance sheet and cash flow plans should reflect the new, later payment date.

Longer term loans like CBILS or the Bounce Back loans require a bit more thought. 

The Bounce Back loans, launching on 4 May are good value. No interest or repayments are due for the first 12 months. After this the interest rates will be relatively low at 2.5%. Banks have promised a simple, on-line application and approval process.

The first instinct of most business owners will be to apply for one. Cash is tight, the future is uncertain and it provides a bit of a buffer. These are good reasons.

Good sense though would be to think ahead and plan how you will use the loan. Ideally this should be within the context of a forecast of profits and cashflows over the next year or two. A key consideration should be that the loan repayments, when they fall due, are affordable.

So grants, yes. Tax deferrals, yes. Loans, maybe, but with some caveats.

Think hard about what you will use the loan funding for, before you apply and try to make it last for your recovery period and beyond.

When its gone, its plan a few months ahead, beyond your immediate and urgent needs.

Saturday, 25 April 2020

Focus on what you can control

I watched a good video clip by a celebrity doctor this morning about protecting your mental health and emotional well-being during lockdown.

The tip that most resonated most with me was ‘Control’. Working out what you’re in control of and what you’re not. Spend time working on the things you can control and don’t waste so much energy on worrying about those you can’t.

This applies to business owners struggling to come to terms with the lockdown. For many their business premises are shut, their employees are on furlough or working remotely and cash is tight. There’s no money coming in and there are bills to pay. Their business world has been turned upside down in a few short weeks.

So lets think about what we can’t control for a moment. We can’t control how long the lockdown will last or how long social distancing and other measures will stay in place. That’s out of our hands. We need to work within the changing rules but we can’t really influence how and when they will change. 

We can control how we adapt and work within the current and changing environment.

The initial priorities for most of us have been about crisis management. Protecting our employees, protecting our premises and protecting our finances. For those of us lucky enough to be in sectors which are still trading, looking after our customers and helping them weather the storm has also been a high priority.

The initial frenzied activity may have been replaced by some kind of calm. We’re not going into work but we’ve done most of the urgent stuff we needed to do. Survival for the next few weeks is secured and some businesses are ‘treading water’ until some kind of normality returns.

This is where I think we also have a degree of control. 

We can spend time visualising how that new kind of normality will look like in our sector in the short, medium and longer term. How will we adapt our businesses to this new environment?

This is not easy but I think is worth the attention of all of us business owners. 

Those of us who follow the latest developments, think hardest and adapt fastest will have a greater chance of success when the current restrictions start to be relaxed.

Sunday, 19 April 2020

Preparing for the new normal

We’ve been in lockdown now for almost a month.

Although the Government have tried to dampen down talk of exit plans, attention is moving to how measures might be relaxed in due course and how we might return to more normal conditions, or perhaps a ‘new normal’. 

The consensus seems to be that at least in the short term, social distancing measures will still apply until a vaccine or another scientific solution minimises the risk of the virus growth accelerating again. 

The most likely sequence for an emergence from lockdown, according to Buzzfeed, seems to be allowing some non-essential shops and industries to open, followed by a relaxation in some social distancing measures and in due course, re-opening pubs and restaurants. Permitting larger public gatherings and events and opening up travel are likely to be further down the track. 

This sequence is still speculative but it does align with measures to relax lockdown seen in some other European countries and the Buzzfeed article has been picked up and reported on by mainstream media.

There is still great uncertainty over the timing and it makes planning difficult for businesses.

But plan we must.

The focus for some businesses has been surviving lockdown. Gaining access to the Government financial support, speaking to their banks, customers and suppliers. This remains the focus for many with essential funding not yet in place to ensure their survival over the next few weeks.

Before too long the focus needs to shift to emerging from lockdown. 

What will this look like in your sector? Some sectors will be permanently changed. Some will have a very gradual return to more normal conditions. There are scenarios we need to plan for and adapt our businesses to the new reality.

One of the buzzwords at the moment is ‘pivot’. In other words, changing your business offering and business model to suit the new conditions. Pubs and restaurants doing takeaway and delivery services, events companies moving on-line, football teams playing in empty stadiums.

Pivoting is a technique widely used in start up businesses. 

If their initial start up offering is not taking off the entrepreneurs will pivot their offering to make it more attractive and relevant to customers. Often these pivots are very radical and involve a complete rethink of the business, starting with the customer and how the assets and resources of the company can best be deployed to meet their needs. 

One of the most unusual and counter-intuitive pivots I read about recently was a former events company which is now manufacturing and distributing its own brand of gin.

Most of us will not be doing anything as radical as moving into the gin business but we may need to think about making some significant changes to adapt to the new environment. 

Will our sector return to a ‘pre-Covid’ situation when we come out the other side or will it be permanently changed? 

We need to be ready and prepared for the ‘new normal’ when it comes.

Friday, 10 April 2020

Its all changed, but good business practice still applies

This is an incredibly difficult time for everyone, both personally and professionally. 

I’ve rewritten this blog once or twice as I don’t want to understate or show any lack of empathy with the difficulties some businesses face at the moment.

For business owners, our woes don’t compare with key workers and those on the front line in the NHS, but there are huge challenges nonetheless.

For some businesses, especially those in retail, hospitality and leisure, turnover has dropped almost instantaneously to zero. For other businesses there has been a sharp decline and the future is uncertain. It’s as if all the day to day challenges we all face as business owners have been crammed into the space of a few weeks and magnified several times over.

It’s tough and we are all trying to navigate our way through.

The Government financial support measures will help many businesses through this period. As business advisors we have spent much of the last few weeks advising our clients on what support measures apply to them and how they can make a claim. For some its a lifeline, for others they have slipped through the net, at least for now and are doing what they can to get by.

Despite all the difficulties I want to argue that the basic rules of doing business should still apply. 

That is, it is incumbent on all of us to negotiate in good faith and only agree to receive products and services we can afford to pay for. If we’ve had a sudden financial shock and meeting agreed payment terms is not possible in the short term, we should speak to our suppliers and try to agree a mutually acceptable way forward.

Something which I believe is not particularly helpful or constructive is saying to suppliers, ‘Things are tough, I’m not going to be able to pay you for a while.’ Another way of putting this is, ‘I’ve prioritised things and paying you is not a priority.’

There have been well-publicised instances of some larger firms doing this and leaving their suppliers high and dry. In my own network I am aware that this has happened a number of times.

In some cases, as well as stopping payment, the customer was still expecting to continue to receive services until their situation improved.

Of course I get it that things are tough. Of course I understand that businesses want to hold onto their cash. Survival is their main objective.

But shifting their problems onto their suppliers isn’t helpful in the longer run. 

A sensible compromise is agreeing a reduction in the ongoing scope of services delivered to what is affordable and perhaps agreeing extended payment terms for old debt.

So everything is different but good business practice still applies.

As the Government has said, this will end at some point and more normal trading conditions will resume. 

Following good business practice during this period will ensure we have a better chance of emerging in good shape and with positive business relationships when the time comes.