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.
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:
• You have 100 clients paying £1,000 each so turnover of £100,000
• You make 50% margin so profit of £50,000
• 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
• 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 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
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:
• 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.
I’m the first person to remind you that you need to work ON your business as well as IN it and I will only take on coaching clients who agree to commit half a day per week to working on their business, but I’m a business owner too and I know how hard that can be to make the time.
We’re always torn between things that earn money now and things that will earn money later such as marketing and business improvements. Not to mention that we’d like to spend some time on the things we enjoy.
I’ve written before about my default diary which includes time for marketing and my own business and personal development. I then allocate particular tasks to those slots. But if you truly want to improve your business then you need to learn to delegate and think systematically.
I love lazy marketing when I use one piece of content in different ways. I also know that my strength is in writing/recording the content and then my wonderful VA tidies it up and distributes it across multiple channels. Whether you’re reading this in our Top Tips e-news or a blog or on social media then she is the one who has put it there (with the help of some software).
My job is to prioritise getting the content out each and every week. When I tried to do the whole job myself it took four times as long so I only got around to it about once a month, maybe less.
Look at everything you do, maybe keep a rough timesheet for a week or month, then go through the list with a highlighter to see what could be delegated to the right person. Then find that right person.
Your priority should be the things that only YOU can do.
If you’re an accountant, you can find somebody else to do the accounts themselves and some of the marketing (I write a monthly content pack for accountants who don’t want to do it themselves) so that you can focus on being the face of your business. If you’d rather be the one doing the accounts, then find somebody else to manage your business. Don’t think that you have to be the MD just because you’re the majority shareholder.
To create the business you want you need to be clear on your priorities.
Several years ago I started speaking to promote my old accountancy business, Hudson Accountants. Like most people I hate public speaking but I went to a school that taught this useful business skill and, by about the third event, I felt reasonably comfortable.
Until I joined the Professional Speaking Association!
Being an occasional speaker is very different from being a professional speaker and so I felt that I needed to relearn my craft. Fortunately the PSA is really good for helping speakers to speak more and speak better and I am now a full member, a former Regional President, and I’ve been invited to speak at one of their national conferences for the second time.
Usually I speak to accountants and business owners who are more interested in my content than the way I deliver it. At the PSA my peers will (kindly) analyse the way I deliver my expertise too. It can be quite scary but I know that, if I’m brave enough to ask for feedback, they will be very helpful.
How do you make sure that you’re always getting better at what you do?
PS. If you’re new to speaking then I recommend joining your local Toastmasters or ask me about individual speaker coaches.
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
5. Efficiency of operation
8. Mergers and acquisitions
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.
I’m currently reading Building a Story Brand by Donald Miller which is about getting the right marketing message for our business. It’s very good and I recommend it.
Miller suggests that we make our customer/prospect the hero and that we are not a hero but their guide. As you can imagine it set off a train of thought as I reimagined my own business in this light.
How do you and your product/service guide your clients to solve their problems and reach their goal? Now, how can you build this into your marketing?
Welcome to the new year. What have you got planned? Incremental business growth, a better work life balance (how long have you been promising yourself that?) or world domination?
Now is a good time to think about what you want and what that means for your business.
Here are some questions to get you underway with your plan:
1. What do you want your life to look like in 5 years time?
2. How much do you want to earn from your business?
3. How much do you need to earn from your business?
4. How many hours per week/month/year do you want to work in your business?
This will give you some idea of how much you need to earn per hour in your business. Don’t forget that you will need to cover your business costs and taxes too.
A good SWOT analysis will help you to decide how to earn the necessary profit. Look at your strengths, your weaknesses, and any opportunities and threats around you. Covid and potential lockdowns can provide both opportunities and threats to your business to make a plan to eliminate or buffer the formers and to be able to take advantage of the latter.
Take a close look at what you are actually doing. What will you sell and to whom? What problems do you solve?
Now you can start on the details of the plan:
1. Sales plan
2. Marketing plan
3. Staffing – who, when and at what level
4. Technology and other resources
6. Other costs
If you need a hand with any of this then we’re running a Strategic Planning Day on 19 January. We’ll work through templates together to help you come up with your own plan for your best year yet. Email us to sign up.
It’s been a busy conference season and, for a professional speaker like me, that means staying in hotels where I eat far too much and don’t manage to do any exercise. And now I need to step up the training again and get back into good habits. The same can apply to stepping up your business as we settle into the next phase of the pandemic.
Mindset – moving from day to day thinking to looking forwards and investing in the future.
Goals – set some goals, even if they’re just steps along the way to a bigger goal.
Plan – get a plan in place to move you forwards towards your goals.
Action – make sure you actually follow through. JDI
If you’re okay for now then let me know your success stories. If you want a hand with how to move forwards or if you need some accountability along the way then call us about an individual or group session.
I have a deadline! I have until 21 June to get back in shape and get my life together. Yes, I’ve coped pretty well for the last year (and I’m aware that many have struggled) but I want to get back to thriving and actively enjoying life rather than making the best of things.
I know what I want to look like (20 years younger and a stone slimmer 😉) but I also need to think about what I want my business to look like. I don’t know about you but my 2020 plans were put on hold and 2021 was also curtailed. Although I managed to double the size of my business it was much more Plan Z than Plan A.
How did you do through the various lockdowns and restrictions? Was it business as usual or did you have to pivot? Will you continue with your new style business or will you go back to Plan A or do you have a new plan?
Will you work from home or office or a local hub or home office like me? I know a few people who have moved to bigger houses because they will be working from home more in future and want a proper office rather than a corner of the kitchen table. What will happen to your office premises? With the technology to work from anywhere in the WORLD where will you work from?
Did you introduce new tech for remote working and other efficiencies or have you spent the last year being cautious and cutting all costs possible? Do you need to invest in your business again?
Did you enjoy spending more time with your family and will you keep up baking banana bread or the foreign language you’ve been learning? Or were you too busy to do any baking? Are there any good things that you want to retain in your life and your business?
With a provisional date on the horizon we need to start preparing for the post-Covid, post-Brexit world.
What will you do from pre-Covid, what will you do from Covid and what are you looking forward to starting post-Covid?