Steady as she goes

 

‘Steady’ is not a word you’d normally use to describe an entrepreneur.

The more typical image is as flamboyant buccaneers, identifying a customer need, raising capital and using energy and intellect to fulfil that need, managing risks along the way.

Tales abound of erstwhile entrepreneurs starting an enterprise in their parents’ garage, from a laptop in their bedroom or from a run-down shop. Almost overnight they become millionaires, then billionaires and high-profile media personalities.

That happens, of course, but for many business owners the journey to riches is a little more sedate and in some cases, more predictable. The few who do succeed (the statistics say that the majority don’t) and become successful and wealthy often achieve this over years, or decades of steady and predictable growth. 

Through the wonderful power of compounding (known and loved by many investors), 10% growth, year after year, will create a business of scale if carried on for long enough.

Of course, most businesses don’t grow in a straight line. 

They have good years and bad. 

The year 2020 for many businesses will be more about survival than growth. With depleted reserves and additional loans, many may take several years to recover. But recover they can and as long as the longer term trajectory is up, they can get back on their former growth curve.

Let’s look at an example. 

A small shop with turnover of £100k in their first year. Sales growth averaging 10% each year for 20 years would rise to a turnover of over £670k in year 20. That’s growth of nearly 7 times! That excludes inflation. So that is more units sold, more profit (if margins and overheads are managed) and more scale.

Of course, that is a hypothetical and simplistic scenario. 

There’s a truism in business though - that what you plan for, you achieve. Planning for a minimum of 10% growth (in normal times) is eminently achievable for most businesses. The plan needs to have substance - in our example of the shop, in one year growth may come from increasing the range, another year from expanding or reconfiguring the space, adding new employees, moving on-line etc. Growth won’t be linear but if the trend line is a minimum of 10% growth, scale can be achieved by steady, consistent, application.

Getting rich quick can be a compelling and seductive objective for some. The lucky few with extraordinary talent or perfect timing may succeed.

For the majority, steady, persistent application can deliver similar results...but it doesn’t happen overnight.

www.base52.co.uk

How much? What to do when you get a big, unexpected tax bill

Your accountant has just finished your personal tax return.

The nasty surprise is that you have an eye-watering tax bill to pay by 31 January. You were expecting to pay something. You have a vague memory of your accountant mentioning last year that you should put some money aside to cover the tax bill. But you didn't quite get around to it.

It's been an expensive year. There was that 'once in a lifetime' holiday, new iPads and phones for the kids, Christmas was expensive. You have no savings. And now this.

Accountants don't like this time. Inevitably they will be giving bad news to some of their clients and sometimes it is not well received. Their clients sometimes mention 'Joe down the pub' whose accountant always gets him a refund. How does that happen? Well if Joe is making losses every year, or buys expensive assets in his business or if he works in construction and has tax deducted at source, he may well get a refund every year.

On the other hand, if he is self employed with a growing, profitable business or has other untaxed income like a buy to let portfolio, the consequence will usually be tax. If he tips into 'higher rate' or 'additional rate' tax territory, the tax bill might be very significant indeed.

Well what's to be done? Well after the initial shock and anger...'Why me?', it's time to think practically. What can you afford to pay over the next 6 months? If you are open and honest with the taxman and present a payment plan you can stick to, generally they will strike a deal.

When you have a plan to pay this year's bill sorted, now is the time to start planing for next year. Being surprised one year is unfortunate. Being surprised the next year is just bad planning.

Talk to your accountant about how you can minimise your tax bill. Is your business structure appropriate? Can you make use of your spouse's personal allowance and lower tax thresholds more effectively? Make the changes now.

And most importantly, set some money aside every month for your next tax bill. Set up a savings account, transfer the money every month and don't touch it until your next tax bill is due.

Paying a big tax bill is never pleasant but if you are prepared and have the funds available, the pain is much reduced.

I hope your tax season has gone well. In just a couple of months it's the end of this tax year and the cycle starts again.

It's in your hands to be prepared this time...

www.base52.co.uk

Stop - Review - Improve. Repeat

Life is busy.

We all do lots of things. Small tasks, bigger activities and major projects. We get them done and then move onto the next thing.

But what about getting better at what we do? Do we stop and take time every now and then to review what we have done and see if we can improve things?

The US Military are big advocates of this. 'After action reviews' started as informal reviews by small groups after they completed an action or activity. This developed into a formal process and is now embedded into their way of working. Businesses have also been using similar processes for many years and it is a powerful tool for driving change and improving effectiveness.

Business gurus Ron Baker and Ed Kless give a template for After Action Reviews (AARs) in their brilliant book about business best practice, 'Soul of Enterprise'.

Some principles are:

• The review should take place soon after an activity is complete (initially the US military would carry these out straight after an action, in situ)
• Key people involved should take part
• It shouldn't be a major exercise. 15 minutes is typical for a relatively small activity
• Start with the objectives. Why were we doing this?
• Let junior members of the team contribute first.
• Everything is 'on the table' and can be challenged
• Encourage people to prepare. Bring along 3 things that went well and 3 things which could have gone better. Think about why they went well or didn't
• Have someone to facilitate and take notes if possible
• About half of the meeting time should be about what will be done differently in future

An accountant's life is full of task, projects and deadlines. There is lots of scope for AARs to drive improvement.

We are currently close to the completion deadline for one of our biggest projects of the year - completing self assessment tax returns for over 300 clients. It's going reasonably well but we still have lots to do.

We already have our AAR scheduled for soon after the last tax return is filed

Within a couple of months the new tax year starts and the cycle continues. Hopefully our AAR will help us take the learnings from this year and make the process even better next time. We will certainly be trying to make that happen.

www.base52.co.uk

5 tips to save time (Not reading this blog isn't one of them)

You can't buy time.

Mega rich Warren Buffet knows this and he protects his time fiercely. There's a YouTube video of him chatting with Bill Gates about this. Bill is amazed that Warren's 'old school' paper calendar is practically empty. He needs his time for thinking and making decisions. Lots of meetings and appointments won't help with this so he avoids them. You can't argue that it hasn't worked for him.

I've been busier than usual lately and it forced me to think carefully about how I manage my time. I re-read Tim Ferris's, '4 hour work week' for inspiration and changed some of my working habits. I'm a long way from a 4 hour week but I have become a bit more productive

Here are some of the things which have worked for me:

1. Chunk your week

Break your week up into time slots where you do specific things. For example - client work in the mornings, sales calls in the afternoons, admin and queries on Mondays etc

2. Shut out all distractions

If you have time blocked out for a purpose, do that and don't get distracted by email, social media, phone calls etc. Let your phone go to voicemail and check email at set times during the day rather than being, ' Always on'. Tim Ferris takes not checking his emails to further extremes - checking only weekly or even monthly if he is travelling. Only one or two time slots a day is a good starting point.

3. Say no

We all want to please. Say yes to that lunch with the nice chap trying to sell you a photocopier, say yes to being on that new committee, yes to that meeting that someone else thinks you really should attend. No wonder our calendars get full. Before saying yes to an appointment a good test is, 'if this were tomorrow or the day after and not in two weeks time, would I still want to do it?'. If you find yourself hesitating you should probably (politely but firmly) say no.

4. Don't be too ambitious

We all have long lists. For business owners, the list is endless. There is always something you can do to make the business better. So we have a tendency to be ambitious with our lists. 'I'm going to get these 10 things done before lunch, then grab a sandwich, prep for that meeting, do the meeting and then finish off some other stuff'. We end up doing only half of it (often not very well) and leaving the office frazzled and exhausted. If you have just 2 or 3 'must do' things rather than a massive list you are less likely to be disappointed and can feel satisfied with a day well spent.

5. Have some chill out time

It's good to make some time during the working day to chill out a little. Whether that's a morning run, a lunchtime walk or a short break in between tasks, it's important to manage our own stress. Like Warren Buffet, have those little gaps (in his case big gaps) where there is nothing scheduled and you can think or take some time out.

I hope these tips help a little if you are feeling super busy and overwhelmed. A final thought is when you have finished your important but not too ambitious activity list, if you're the boss, why not call it a day? You don't need to stay every day until you have done your allotted hours.

Tim Ferris managed to get down to 4 hours a week. Most of us might not get there but a 40 hour week would be nice, right?

Let's finish with a quote from the great man, Warren Buffet, 'I really like my life. I’ve arranged my life so that I can do what I want'.

Now that's time management. 


www.base52.co.uk

Value, like beauty is in the eye of the beholder

It's a truism that the same thing will be worth more to some than to others.

For individuals the value of something will also change depending on their circumstances. A glass of water is worth much more if you are lost in the desert than if you are sitting at home watching tv.

Despite this most products and services we buy are a standard price. There might be regional variations but broadly the price is uniform. That makes sense for 'commodity' products and services where there are multiple units and each one is identical or very similar.

Where products and services are unique there is an opportunity for businesses to be more flexible with their pricing. 'Value pricing' is nothing new and there has been and still is much research and debate on how businesses can do this effectively.

The Wikipedia definition of value pricing is, 'Value-based price is a pricing strategy which sets prices primarily, but not exclusively, according to the perceived or estimated value of a product or service to the customer rather than according to the cost of the product or historical prices'.

I like this definition and the key phrase is pricing based on, 'the perceived value...to the customer'. How many of us do this in business? Surprisingly few I think.

Surprisingly, because the thing about value pricing is that both the seller and the buyer end up happy. The seller because they have maximised their selling price and the buyer because they have purchased something at a fair value to them.

One area where value pricing comes into play and has been exercising me recently is selling a business. Value here can vary tremendously between each prospective buyer. Some may see synergies with their existing business or opportunities for improvement that may not be apparent to other prospective buyers.

So the 'game' for the seller and their representatives here is to find out where the prospective buyer's value threshold is. There is an old saying in business, 'How much money did you leave on the table?'. For many sellers it can be quite a lot.

A seller may be pleasantly surprised at an initial offer and be tempted to accept. In most cases though, this is a time to step back and reflect. Put yourself in the buyer's shoes and think hard about what the real value is to them. This could mean that you leave less money on the table and both you and the seller achieve a good outcome. That is worth some time and mental effort I think.

www.base52.co.uk/consultancy

Don't get mad - do something positive

I've recently finished reading 'How to be human'. It's written by the very clever people at New Scientist magazine and is full of facts about how our bodies and minds work and what makes us special.

As a life-long runner I was delighted to learn that we were 'born to run'. It seems that humans are built for long distance running. We have apparently evolved this way to help us hunt and 'run down' prey to exhaustion and also forage over a wide area.

I learnt there is no such thing as a 'sugar rush' and the secret to long life is a combination of exercise, diet, managing stress and good genes. We can do something about the first 3 things but not the last unfortunately.

I also learnt a bit about emotions. I hadn't realised that there are 6 basic emotions - happiness, sadness, fear, anger, surprise and disgust. There are also secondary emotions like curiosity and confusion. A fascinating fact is that all these emotions illicit different facial responses which studies suggest are innate rather than being learned. So when we are curious our heads tilt to one side and the muscles in our forehead and around our eyes contract. Useful information for poker players but they probably know this already.

So what about using emotions as a force for good and for pursuing our goals?  On the face of it anger is a destructive emotion but there is evidence that it can also be beneficial and energising. To be a catalyst for positive change, anger needs to be channelled in the right way.

There is a very famous saying from Aristotle about anger, 'Anybody can become angry - that is easy, but to be angry with the right person and to the right degree and at the right time and for the right purpose, and in the right way - that is not within everybody's power and is not easy'

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Small business has become this government's 'cash cow'

The increase in National Insurance contributions announced in the Spring Budget is the latest in a number of tax increases introduced by this government which have a negative impact on small business. The government is in need of cash and it seems like squeezing small business is a relatively easy way of swelling their coffers.

Let's explore the evidence for this. Recent tax changes targeted at small business include:

• The introduction of a dividend tax effective from April 2016
• Changes to the VAT flat rate scheme effective from April 2017
• Increase in national insurance for the self employed from April 2018
• Reduction in the tax free dividend allowance from £5,000 to £2,000 per annum from April 2018

The case put forward by the government for making these changes is that they are 'Levelling the playing field' between 'self employment' and employment. I use the term 'self employment' in its broadest sense here to include those who trade via limited companies, usually as owners (shareholders) and directors (employees). So they have set about withdrawing all the relatively minor tax breaks which were in place to support risk-taking and entrepreneurship.

The issue here is that self employment and employment are not the same and in my opinion should not be taxed in the same way. Many of the smallest businesses are already struggling to make ends meet, particularly in the early stages of their business. Many entrepreneurs do not have a pension or if they do it is often inadequate. They don't get paid if they are absent or sick. All spare funds are often put into keeping their business going and paying their employees and other costs. An extra tax burden on top of this will be hard to bear and in some cases will have a significant effect on the businesses and their owners.

The dividend tax has been introduced without so much as a murmur of protest. For a basic rate tax payer the extra tax burden will be around £2,000 per annum. There were no marches on Downing Street, no petitions on Facebook and no outcry in the Press. The changes to the VAT flat rate scheme again have passed through with little opposition although the cost to a small businesses turning over say £50,000 will be around £2,000 annually along with an increased administration burden. The National Insurance increase has generated more resistance, not least as it went back on the Tories election manifesto pledge not to increase National Insurance, Income Tax or VAT. At the time of writing the government has said the change is 'fair' and it will go ahead.

So what is the conclusion to be drawn from this? Well it seems clear to me that this government does not understand or value small business and sees it as an easy target to hoover up cash. It's an easy target as the Tories are attacking their natural constituency. There has been little protest from the opposition to these tax changes. Small businesses seem to bracketed in with 'big business' excess and tax avoidance scams and as such are seen as fair game to squeeze a bit harder. The danger with attacking your natural supporters is that when things start to bite as they will soon, you find that you cannot take your core support for granted any more.

The UK is still a good place to do business. It's relatively easy to start up and administration, although burdensome, is simpler than in many other countries. If we take away all the tax incentives for business owners we will see more businesses failing and more entrepreneurs thinking, 'What's the point'? if an increasing chunk of their endeavours goes straight into the Chancellor's purse.  Small businesses are the engine for job creation, they give our high streets their diversity and colour, they are the big businesses of the future. We need to nurture and encourage them rather than squeeze the life out of them.

www.base52.co.uk