I’ve just received an email from my web hosting company to say that they will be charging me more.
The reason is that two of my websites use software that is about to become obsolete so the hosting company will charge me an extra support fee from 5 February unless I upgrade.
This software has a two year life so I’ve already upgraded it once with the help of the hosting company (Fasthosts provide much better support for the tiny monthly fee that I pay them and they’re lovely to deal with). It’s not too difficult but I imagine that many people just ignore a simple message that their site will be unsupported. This way I have a financial incentive to make sure that I do the upgrade promptly. And, if I don’t, the hosting company get some extra income as they’d probably end up sorting out the mess anyway.
Which reminded me that, although Minerva Accountants is supposed to be a Xero only business, we do have one client using an older cloud bookkeeping software with less functionality. This means that we’re unable to offer as good a service. Of course I justified it to myself at the time but now, with the benefit of hindsight, I realise that I was wrong and should have followed my own advice! So I’m going to offer to help my client to migrate to Xero for a better service or to increase the fee to support an ageing app.
Where have you broken your own rules and regretted the lack of efficiency? Should you correct this even if it means losing the client?
How about joining one of our strategic planning days to streamline your business for 2023?
This year we’re running two (although you can join either one). Fri 27 January will be for any business and Wed 22 February will focus on accountants/bookkeepers. Find out more here.
Rules are there for a reason
Did you hear that a lot in your school days? Even though most of the rules seemed a bit, well, stupid? I certainly did!
A few weeks ago, I broke one of my own rules. It was a good rule and there to protect me, but I was doing somebody a favour to help them out. (You’ve probably made the same excuses yourself)
A training company was looking for a speaker at short notice and a colleague recommended me. There was a lot of backwards and forwards to see if I was a good fit which meant that time was even tighter by the time it was all agreed. And then they sent over their terms and conditions for signature which were different from my standard speaking terms in one main respect. There was no up-front payment.
As most of you aren’t professional speakers, I’d better explain that, for a speaking assignment like this, I would spend 2 days learning the material (I usually spend a similar amount of time writing my own) and rehearsing so that everything is flawless without looking over-rehearsed. I spent a day travelling and a day delivering the content and incurred related expenses. 4 days work plus travel and hotel costs.
Event organisers may charge attendees up-front, but they prefer to pay their speakers after the event (Although far too many expect speakers to work for ‘exposure’, but that’s another problem). Event organisers often cancel at short notice if they don’t get enough people signed up which can leave speakers with wasted time and prebooked travel costs. This is simply solved by charging a deposit at the time of booking.
As everything was done at short notice to help out the new client there wasn’t time to negotiate a deposit.
So, I did ALL the work and incurred all the costs before invoicing them at the earliest possible moment and guess what?
They didn’t pay on their agreed date! And they didn’t even bother to let me know why not!
Anyway, several weeks later and after wasting far too much time chasing, I finally got paid.
But I won’t be making that mistake again.
Please learn from my mistakes and get paid up front where possible. At Minerva Accountants our annual fee is all paid by direct debit before the year end. Have a look at your terms and conditions and see if they could be tighter.
Good causes vs charities
Not all good causes are charities and not all charities are UK charities. Why does this matter? Only donations to UK charities are tax deductible.
Please don’t let this stop you donating to good causes around the world but I just wanted you to be aware that your donations can go further if they’re to UK charities.
I also meet a lot of people wanting to set up charities for very good causes. The regulations around running a charity are enormous so, if you’re just running a few events, it may be easier to treat it as a fundraising event for an existing charity. Why saddle yourself with all the additional accounting, admin, and audit of setting up a charity when you could use that energy to raise money for the good cause itself?
You are not a bank!
And, as far as I know, you are not a charity. So why are you lending clients money by allowing them extended credit or even working for free?
Here are some tips to help you collect money faster:
- Invoice promptly. Xero can help with repeating invoices, invoicing from quotes, and invoicing from your phone while on site
- For longer contracts consider getting paid up front or in instalments. Minerva’s clients pay us over 12 months as we are doing work for them throughout the year with monthly bookkeeping health checks and other advice as a minimum
- Make it easy for people to pay you. Make sure that your bank details are on your invoice. Our regular clients pay by direct debit through Gocardless. We can also take payment by card and there is a button for this on our invoices or we use Zettle to take payments for booksales at conferences etc.
- Send invoice reminders. We can help clients to set up the automated reminders in Xero. The first one is just a polite enquiry to check that they have received the invoice and that everything is alright. Later ones are more severe. If clients require more functionality we can help them with Satago or Chaser.io
- Credit check your clients with an app like Satago.
- Be prepared to take legal action. Clients pay for their services. Requesting services without the means to pay is like shoplifting. If they’re not paying they’re definitely not clients. Clients ghosting you is definitely a broken relationship, get paid and get out!
You work hard so you deserve to be paid.
Money, money, money
Most small businesses fail because they run out of cash. It caught out a lot of people who couldn’t cope while they waited for covid funding came through. Hopefully we’ll never have to manage a global crisis of that magnitude again but there are many things that might go wrong for individuals. I’ll talk about business continuity planning separately as I just want to consider your bank balance today.
I recommend reading the first half of Profit First by Mike Michalowicz and I think I’ve written about it before. There are some good principles and the remaining chapters just go into more detail
I have a Starling account which comes with savings spaces and I do monthly management accounts on Xero so I try to ensure that I have the following saved:
- VAT per Xero
- Corporation Tax per Xero management accounts (or you can save 19% of your profit)
- 3 months of overheads in case of illness or crisis which can also be used to buffer any large or unexpected bills
- Dividends to pay myself later in the year
- Spare cash to pay into my pension later in the year to minimise my tax
I usually pay my suppliers immediately because, as a small business, it reduces my admin to only deal with each transaction once. You should ensure that you have enough funds to pay your suppliers on or before the due date. A business is insolvent if it can not pay its debts on time.
I also use a Starling account for my personal finances and I use my savings spaces for:
- 3 months of household costs in case of illness or crisis which buys me enough time to sort out alternatives
- Savings to replace my car every three years
- Savings for holidays each year and fun experiences such as watching musicals with my kids
- Income tax due on my dividends and other income not on PAYE.
It’s taken a long time to build up this financial security so don’t worry if you’re not there yet but, if you’d like a hand with making your business run more profitably, please give me a shout.
Making Tax Digital for landlords
Landlords with rental income over £10,000pa, ie charging rent of just £834 per month, will have to join MTD ITSA (Making Tax Digital Income Tax Self Assessment). This means that they will need to keep digital records and submit quarterly reports to HMRC from April 2024.
Speaking to friends on both the accountant and HMRC side of the project there is no sense that this date will move so I’ve been looking for some software to help landlord clients to comply with these new requirements without costing a fortune. I have a couple of possibilities that I will be reporting on over the next couple of months. I’ll be sharing the articles on social media but, if you miss them, then please do get in touch for the links.
I’m worried about increasing my prices in case I lose clients
It’s a common fear but your existing clients will be less price sensitive if you are doing a good job.
Have a look at this example (numbers rounded for simplicity) of how many clients you can afford to lose without impacting your profit:
Before
• You have 100 clients paying £1,000 each so turnover of £100,000
• You make 50% margin so profit of £50,000
After
• Della comes along and tells you to increase your prices (see the last two weeks for how and why you should do this) by 10%
• You now have 100 clients paying £1,100 each so turnover of £110,000
• Your margin is now 54.5% so profit of £60,000 ie a gain of £10,000 because all your pricing increase is profit
But
• Some of your clients aren’t happy and 10% decide to leave
• You now have 90 clients paying £1,100 each so turnover has fallen slightly to £99,000
• But your 54.5% margin means that you are still making profit of around £54,000 so you are earning £4,000 more for only 90% of the work. Possible even less work because the price sensitive clients are usually those who are most demanding and often a pain to deal with.
In fact
• In this example you can afford to lose up to 16% of your clients and still make slightly more profit
• 84 clients paying £1,100 gives turnover of £92,400 and profit of £50,400 ie £400 more than at the start but for 84% of the work
How to increase your prices
Last week I talked about WHY you need to increase your prices but, less talked about is HOW you go about doing it.
It’s a lot easier to talk about in theory than it is to do in practice.
- Work out what your prices should be. If you need to provide quotes then work out what your method of calculations will be.
- Recalculate up to date prices for all your clients.
- Consider using pricing software which provides confidence to both buyer and seller that this is the right price.
- Start by increasing prices for new clients
- Email/write to all clients with the new price. If you have not done regular price increases before then you may need to explain that this is due to catching up an several years and reassure them that you will not leave it so long in future. Keep your explanations brief.
- Telephone any clients who need extra TLC or if a change in scope means that the increase needs further explanation
- Resist discounting. You worked out your prices in (1) above.
- Practice telling client your new prices. If you’re an introvert who hates role play then just rehearse in front of a mirror:
“Our new prices are …”
“We do not offer discounts”
Also prepare responses to any other potential objections so that you don’t need to think on your feet quite so much.
Why you need to increase your prices
A lot of business owners avoid increasing their prices, either because they’re worried about losing clients or because they don’t know how to go about it. Even when they know that they need to increase their prices it is too easy to procrastinate (I’m the queen of procrastination, I have all the excuses)
I’ll cover the ‘how’ in separate tips but today I want to talk about why.
We all started our business for a reason which broadly come into one of three areas:
• Profitability
• Build something valuable to sell at retirement
• Better work – life balance
All of these will benefit from having better prices allowing you to earn more money, increase the value of your business, or to earn more in limited time.
But the real benefit to our clients is that we will have time to provide a quality service. To do things properly and not cut corners. And to run a business that will still be around to help them in future years.
When we provide a quality service our clients benefit, they stay with us, and they refer other people to us. It’s a virtuous circle because everybody wins.
To create the business you want you need to charge the right prices.
What is business advisory?
As you know I’ve spent the last year writing ‘Changing the Numbers: how to deliver advisory services for success’ to help accountants to provide real help for their business clients. And I’m the first to agree that, whilst all businesses need this service, not everybody can afford to pay for it. (This is why we have free products such as our Better Business webinars for accountants and our Money Matter ones for general business.)
But for those clients that can afford to invest in growing their business then we can do much better than a bit of tax advice at the year end or help completing a loan application. As accountants we have financial training but we also have exposure to hundreds, if not thousands, of businesses as well as running our own.
Accountants who, like me, have worked as Finance Directors or similar will know that their role at the board room table includes much more than ‘just’ accountancy. The topics that I’ve identified include:
1. Vision and values
2. Cash flow
3. Pricing
4. Staffing
5. Efficiency of operation
6. Funding
7. Tax
8. Mergers and acquisitions
9. Marketing
10. Sales
11. Customer services and quality
12. Cost control
Different accountants may offer advice on some or all of these areas depending on knowledge and experience so we need to be clear on those areas.