Learning from the Babylonians

If someone asks me to recommend a book on personal finance I choose George S. Clason’s, ‘Richest man in Babylon.’ 

I’ve given copies to my kids (I’m not sure if they ever got round to reading it) and to several other friends and acquaintances over the years.

Clason was born in 1874 and started writing this book as a series of pamphlets in the 1920s. The pamphlets were circulated by banks and insurance companies and became very popular. Eventually they were compiled into the famous book.

The book is a series of stories which purport to draw on the wisdom of the Babylonians, some 6,000 years ago. They built a prosperous and successful city and dynasty that survived for centuries, founded on principles of trade and sound financial management.

The principles are timeless and if followed, with application and some luck, over a period of time should make anyone wealthier.

Here is a brief summary of the 7 rules for acquiring and retaining wealth as described in the book:

1. Start thy purse to fattening.

Simply put, save 10% of what you earn. Easy if you have a decent income, less so if you don’t. Very true, but Clason argues that whatever your income, regular saving is key. 

2. Control thy expenditures

Self explanatory this one - having a budget and sticking to it. Save the 10% and make sure you spend no more than the remaining 90% each month

3. Make thy gold multiply

As the 10% builds up into a reasonably-sized pot you need to make this work for you and generate an income. In today’s world Clason would say speak to an Independent Financial Advisor or propose investing wisely based on knowledge of likely risks and returns. He guards against. 'Get rich quick' schemes.

4. Guard thy treasures from loss

Clason’s view was that you should ‘protect your principal, ie if investing £1,000 make sure this is protected and is your minimum return. So under this rule the stock market or property investment would be ruled out. I suspect he might modify this rule in today’s world but the principle of being cautious about losses still holds true.

5. Make of thy dwelling a profitable investment

Again, self-explanatory but easier said than done for youngsters in the current housing market. House price inflation has outstripped wage growth for many years making it harder to get a foot on the housing ladder. My personal view is that it is still worth making the stretch to buy if at all possible. Government-backed incentive schemes can help and once on the ladder things should improve over time if household wages continue to grow.

6. Insure a future income

In other words, make sure you have some income for when you no longer work. For many of us this is an employment pension, supplemented by State pension. For the self-employed pensions often get neglected, especially in the start up years. Thinking ahead and providing for this well in advance is sound financial planning

7. Increase thy ability to earn

Learn a new skill, get a new qualification, keep learning. We know that pays off and increases earning potential in the longer run

That’s essentially it. The stories bring the rules to life and keep them in the memory.

By a mixture of luck, a fortunate upbringing and some mistakes made along the way I’ve kind of fallen into doing these things consistently over a period of time.

They’ve worked for me and I think can work for others too

Babylon may be no more but the Babylonians certainly knew a thing or two about the acquisition and retention of wealth.

www.base52.co.uk

Something for a rainy day

To put something aside for potentially difficult times ahead is not a new idea. It’s something most of us do to varying degrees. 

For personal finance, Financial Advisors recommend that its good practice to have an emergency fund of readily available cash to help deal with unforeseen events - a new boiler, new tyres for the car etc. An ‘ideal’ emergency pot might be about 3 months salary - enough to keep you going for a while if the worst happens. For the most organised amongst us, the emergency fund would be in addition to other longer term savings plans.

So what about the event looming on the horizon for those of us living in the UK which is not too far away - a possible no deal Brexit on 31 October? I read recently that some observers are now saying the likelihood of a no deal Brexit is greater than 1 in 3. The direction of travel seems to be changing from ‘no deal’ being a ‘possible’ outcome to a ‘probable’ outcome. The turbulence with the exchange rate and the stock market in recent days suggests the markets believe there is a strong possibility of rocky times ahead.

So what can small businesses do to prepare? There are specific, technical planning measures that businesses who import and export will need to take. For businesses that employ EU citizens working in the UK there may be changes they need to make to ensure they are compliant. There will be some changes to VAT rules, especially for exporters. These are all things that need to be looked into carefully and plans made. 

But what of more general plans? Is ‘Keep calm and carry on’ enough?

I think, probably not. I think the key thing for all businesses is to be prepared for some kind of downturn. If it’s not as bad as Boris’s, ‘Doomsters and gloomsters’ predict, that’s great. All that’s been lost is a bit of time planning and preparing.

Modelling different scenarios is worthwhile. If your sales fell by 5% or 10% for 6 months what would you do? Do you have enough reserves in the business to carry you over a hump or do you need some extra funding? Increasing your overdraft limit now, before you need it is better than asking when business finance becomes more critical. Can you cut back on some of your major costs quickly if you need to? Can you reduce your drawings from the business to steady the ship?

None of us know for certain what will happen in the next 90 days or so. A bit of advance planning will ensure we are at least prepared. So think about getting your whiteboard out next week and looking at your numbers.

If the rain does come down at least you will have your brolly with you

www.base52.co.uk

Shooting for the moon

I loved following some of the recent news and programmes to celebrate the 50^th anniversary of the Apollo moon landings.

I remember watching it on the news as an 11 year old boy. Armstrong’s historic steps took place in the middle of the night for UK viewers. That may be why the first moon walk from Apollo 11 is imprinted slightly less on my memory than Apollo 8 breaking from earth’s orbit to head for the moon a few months earlier. Both are brilliant, mind-blowing memories.

The wider Apollo programme, from Kennedy’s visionary speech at the start of the decade, through the tragedy of Apollo 1 where astronauts were killed in a ground test, to the successful exploratory flights and the triumph of Apollo 11, was a crazy, massively expensive, heroic and incredible journey.

Apollo’s legacy is huge and far-reaching. Many see it as man's greatest achievement and even those who believe it was an expensive folly and arms race indulgence would recognise that it was an incredible feat of ingenuity and courage.

Whatever your view, I believe there are lessons for business owners which can be drawn from this programme.

These are some which spring to mind:

The vision thing

JFK made his famous speech at Rice University in September1962. It is worth watching on Youtube to capture its raw power. ‘We choose to go to the moon’. Kennedy’s statement was simple and specific. To land a man on the moon, by the end of the decade and bring him back to earth safely. The goal was achieved in July 1969. How many businesses have a vision? How specific is it and how is it communicated? Kennedy’s vision inspired, motivated and mobilised a whole country. Powerful stuff

Belief

Landing on the moon seemed like an impossible challenge. A striking thing listening to the reminiscences of those involved is that they ‘believed’ they could make it happen. Some of this was possibly down to the confidence of youth. The average age of mission controllers was 27! ‘They didn’t know what they didn’t know’. There were huge setbacks and barriers along the way but belief that they would eventually be successful helped to carry them through.

Commitment

One of the podcasts I listened to about the Apollo programme described how committed people were to making it a success. Unpaid overtime was the norm. At peak times people worked all hours to get things done and overcome hurdles. Unpaid working on that scale is not realistic or ethical for businesses but commitment in terms of a desire to get things done and work towards a common goal is a priceless commodity

Teamwork

There are numerous examples of incredible teamwork on the Apollo programme. At its peak 400,000 people were employed directly or indirectly on Apollo 11. What a fantastic job of coordination and teamwork to bring all this together to focus on the end goal. The teamwork between Armstrong, Aldrin and Collins in space and the support team in mission control, Houston was tangible and each team praises the other in almost every interview.

Adaptability

The Apollo team were always adaptable. If their plan A didn’t work there was plan B and if there wasn’t a plan B they would make one on the fly. The most striking example was with Apollo 13 where the Command Module failed and the lunar module was adapted to become the astronauts’ place of safety and their refuge to travel back to earth. How many businesses have a plan B or rise to the challenge if plan A doesn’t work?

Excellence

The best thrived in Apollo’s challenging and competitive environment. Nothing but excellence was tolerated in terms of attitude, commitment, quality of work, decision-making and so on. Timescales were so tight to achieve JFK’s goal that the best engineering graduates were recruited without interview. They were thrown into a work role almost immediately and either ‘sank or swam’. I’m not advocating this as a recruitment or a management method for businesses but the focus on excellence is the key thing. There was no room for passengers or people making up the numbers. You either ‘got with the programme’ or fell by the wayside.

Landing on the moon is clearly different from running a small business. The similarity is that it's about a group of people working towards a shared goal.

If the moon mission was possible in 7 years from vision to success what can be achieved in business with vision, belief, commitment, teamwork, adaptability and a focus on excellence?

Shoot for the moon as they say…

www.base52.co.uk

Burgers and bookkeeping

Most businesses are in control of how they provide products or services to their customers.

A McDonald’s burger is a McDonald’s burger. It’s done the same way, every time. When you get a flight you turn up at the airport, do check in, go through security and passport control, sit in your selected seat and follow the process. In a restaurant you are greeted, shown to your table, choose your food, it arrives, you eat, you leave.

McDonald’s is the extreme example of a business owning and controlling the process but most businesses do the same, to some degree.

Except, perhaps accountants. All our clients are different it seems. Some provide their records to us in a carrier bag, some in shiny folders in monthly batches, some via email or Dropbox, some summarised on Excel spreadsheets, some on accounting software. Some tidy and reconciled, many not.

So often we work in different ways and using a different process for different clients. That’s a challenge because we need to adapt to each client and have a good working knowledge of multiple accounting systems. ‘That’s what our clients want’, many accountants would say. Maybe, but it’s not terribly efficient and maybe our clients ‘Don’t know what they don’t know’

I’m happy to admit that we have followed what we believed to be the ‘client friendly’ method. However the records are presented, we will find a way of coping with it.

I believe now that things have moved on and we are not acting in the client’s interest if we do not direct the process more than we have in the past. If we can scan receipts, quickly and easily why would we not encourage our clients to do this to save time and simplify the process? If we can use software which downloads the bank feed and automatically matches invoices to payments and receipts, why wouldn’t we take advantage of that? And why would we not use intuitive dashboards rather than paper-based or pdf reports?

Some firms have taken this on board such that they work with a single accounting package with associated apps and they own and control the accounting process with their clients, including doing the bookkeeping in most cases. They get huge efficiencies and economies of scale which they can pass onto clients in terms of improved services and ‘value-adding’ advisory support.

We may not go quite to the extent of prescribing a single accounting system but I do believe standardising how we receive records from our clients and our own internal processes is beneficial for us and our clients.

Accountancy may be different from burgers in a bun but we can learn a lot about consistency, value and service from Ray Kroc and his empire.

www.base52.co.uk

Riding the wave of the latest killer apps

I started my career in accounting just when the the last big ‘killer app’ arrived. 

The spreadsheet. 

We can’t live without them now and Excel has become the ubiquitous market leader as part of the Microsoft Office suite. 

Before the spreadsheet arrived ‘number crunching’ was a big part of accountants’ lives. Checking column and row totals in their clients’ manual records. Cross-casting on their own large analysis sheets. Lots of time spent checking and adding up lots of numbers. This time spent added no value at all to their clients but was a necessary part of work to ensure accuracy.

The spreadsheet changed all that and perhaps more importantly it allowed for rapid analysis and ‘what if?’ modelling. As a management accountant this was my bread and butter. Spreadsheets enabled me to prepare budgets, forecasts, investment appraisals and complete ad hoc analysis, rapidly and accurately.

It’s a tool we still use and can’t do without. It changed the way accountants work and enabled them to provide more value, rather than removing the need for accountants altogether. Undoubtedly some clerical jobs were lost but accountants continued to thrive.

There are new killer apps now transforming the accounting sector in the form of scanning software and cloud accounting software with links to  banking transactions.. 

Accountants ignore these at their peril. 

They have changed and are changing the landscape in 3 major ways:

• Removing the need to key in invoices and receipts into an accounting package
• Increasing the speed with which accounts can be processed and made available
• Access anywhere, any time

These are transformative changes on the scale of those we saw with the spreadsheet. As with the spreadsheet I don’t think these changes will bring about the demise of accountants. They will however limit the careers and prosperity of accountants and accountancy firms who do not embrace the change and adapt to new ways of working.

There is an opportunity to deliver greater value to clients through more timely reporting and analysis and providing more proactive advice and support..

There is a huge benefit for clients and accountants alike if we ride the wave together with these latest killer apps.

www.base52.co.uk

Ch-Ch-Ch-Ch-Changes

‘Turn and face the strange’, as Bowie said.

I’ve lived through and played a small bit part in some big change programmes in my former life as a management accountant at a large food retailer.

Big consultancy firms were involved, large PowerPoint presentations, lots of jargon and buzzwords and backing from the Board. Some went better than others. Key aspects were engaging those affected and ultimately the whole business on why the changes were needed and communicating, communicating, communicating.

Some of the changes implemented like effective meetings, project management tools and process improvement became part of the DNA of the company and helped it stay ahead of the competition for a sustained period of time.

What about managing change in a smaller company - say with 10, 20 or 50 employees? Processes and ways of working tend to be more informal and centred around people and their likes and dislikes rather than a company style. Budgets are small and people (including the owner) are normally working at capacity so there is little time to consider and actively engage with change.

But sometimes change needs to happen.

Small businesses evolve and from time to time they reach a plateau. Perhaps they have become too dependant on the owner. Perhaps the owner is nearing retirement age and wants to move away from doing 50/60 hours weeks. Perhaps the business has become a bit stale and is not focussing on their customers.

Making a change can be difficult but it can transform a business if the owner and key employees commit to the change and focus intently on delivering it.

The same principles of communication and engagement are critical as with a larger organisation.

I strongly believe that an external facilitator of some kind is important if not essential. This could be the company’s external accountants or a business consultant of some description. Their key attributes should be that they are experienced in managing change and ideally with specific experience in the areas you are looking to transform.

Another essential component in my view is to have a programme manager or project manager whose responsibility is to oversee and facilitate the change. This would probably involve freeing up one of the team from their day job for a period of time to manage the change programme.

So you have a plan and the objectives you want to achieve. It’s worth bearing in mind Mike Tyson’s quote, ‘Everyone has a plan until they get a smack in the mouth’. You will probably get several smacks in the mouth to veer you off plan and will need to keep the objectives in mind and try to steer back on track.

With luck, effort and resilience the plan can be achieved and the business taken to a much better place.

Good luck if you decide to embark on your own change journey.

www.base52.co.uk

Early Adopters, Laggards and those in between

I used to work with an Early Adopter. 

No, I mean a real Early Adopter. He loved the newest of new technology. Whether it was the latest phone, the latest palm pilot (as it was back then), he was first in. It didn’t matter that it was pricey or still in Beta version with all the glitches. He had to have it. So he did.

It must be nearly 20 years ago now since we were working together and he was taking notes using a writing gadget on a rudimentary tablet. They are now mainstream with Smart Pencils and other tools and Apps but he was well ahead of the curve.

My tech-loving work colleague has gone on to be a senior director in the world of marketing and social media. Being at the ‘bleeding edge’ has done him no harm at all.

I’m not like that. I’m always interested, but whether its work or play, I usually wait for something to be tried and tested before I dive in and have a go.

There is a ‘Technology Adoption Life Cycle’ which describes the different categories of behaviour types. These range from Innovator and Early Adopter through to the Late Majority and Laggards. Laggards only come along screaming and kicking after the new technology becomes mainstream. Typically they will still be watching Betamax videos and playing their vinyl records. On the latter, the cycle came around again and they could argue they were the innovators. But that is the exception.

Usually the Innovators and Early Adopters win in the market place. They take the pain and make the mistakes but keep learning and stay ahead of the pack. So when the Early Majority join in they are already on to the next thing. 

Being slightly late isn’t always a bad thing. Being too late is disastrous. 

So in the business world, when the Early Majority ‘wake up and smell the coffee’, if they act quickly and decisively and embrace the new technology or process which is disrupting their market, they can still exploit the new opportunity at the expense of the Late Majority and the Laggards. 

Technology is disrupting the accountancy sector in a big way at the moment. Cloud software has been around for a long time but is really now coming into its own. Why would you use a clunky desk-top package when you can have a cloud package where you can view your accounts from any device, at any time and it is always up to date? Scanning software too is taking the drudgery out of bookkeeping by removing the need to key in receipts. 

I have to admit that we have not been first out of the blocks with this. We have had our cautious accountant’s hat on and observed closely how things have developed. HMRC’s “Making Tax Digital’ initiative has also changed the landscape by making the adoption of accounting software a necessity for small businesses.

Our instinct has been to go with our clients on this and move at a pace they feel comfortable with. We will continue to do this but I think they expect us to lead and guide them, which is what we intend to do. 

On a personal level I have my new tablet now with the whizzy drawing pencil for my notes. I’m 20 years behind my old work colleague but I’m embracing it enthusiastically. 

Who knows, I might just try out one of those new-fangled Smart Watch things very soon.

www.base52.co.uk