The Chancellor’s Autumn Statement is two steps forward, one massive leap back with changes to the VAT flat rate.

The papers have been awash with analysis of the Chancellor’s Autumn Statement, the state of the economy, the impact of Brexit and how the JAMs are going to suffer more for longer.

The Federation of Small Businesses said its impact for SMEs would be “modest and medium term”. For me, there are three things which really stand out that’ll affect my clients and their businesses: two good, one bad – well we can’t have everything can we?!

I’ll start with the bad news…

The changes to the HMRC’s VAT Flat rate scheme to avoid abuse of the system are now complicated and awaiting confirmation but the upshot is that it will be costly news to many businesses like my own – accountants and consultants – service rich but goods poor operations.

The HMRC overview is here but let me clarify.

What is it changing to? A new 16.5% VAT flat rate for businesses with limited costs will replace the current system of sector specific percentages.

How will it work? Up till now, businesses had been able to decide which flat rate % was applicable to their company by trade sector, but now they must decide if they meet the definition of what constitutes a limited cost trader. (This is set to be defined in new legislation).

For some businesses using the scheme, or thinking of joining the scheme, they will need to complete a test to decide whether they should be on the scheme and use the new 16.5% rate.

The new 16.5% category will only apply if costs of goods are either: less than 2% of turnover or if over 2% but less than £1000 per annum. Goods will be specifically defined for the purposes of the measure.

Who will it impact? It will impact service oriented businesses in many sectors whose sector VAT rate is currently significantly lower. It will take time and significant effort to define who is eligible and will result in many businesses paying more tax.

When will it come into effect? April 1st 2017, but it may be backdated to now. Watch this space as more detail, definition and legislation is to come.

On the plus side…

The Chancellor’s financial golden nugget for SMEs was earmarking a not insignificant £400m into venture capital funds through British Business Bank Investments (BBBI) in a bid to unlock £1bn of finance and boost firms’ ability to grow – whether that’s a start up that’s looking for phase 2, a scale-up or to stay ahead.

How it works: The Fund will specifically target later stage ventures through the BBBI VC Catalyst Fund – a stage the BBBI has identified as having a funding gap preventing businesses reaching their full potential.

How to apply for funding support: The BBBI finances through 90+ partners and uses venture capital, equity and debt finance to help fund company expansion as it doesn’t distribute funds directly. This particular £400m pot will be distributed through the VC Catalyst Fund and its partners. To work out which is the best VC for your business to apply to – start with the Business Finance Guide.

Finally, it’s great to see the Chancellor confirm his plans to permanently increase the business rate relief, taking 600,000 small firms out of the rates system completely and lowering bills significantly for many others. Rural businesses will now get 100% relief on rates – which is fantastic news.

So for many small businesses it really is a case of two steps forward, one back…

WrightCFO is an outsourced Finance Director consultancy specialising in part-time FD contracts in the SME market. Contact me for a free consultation.

www.wrightcfo.co.uk

sophie@wrightcfo.co.uk

Tel. 0208 943 9027

 

 

Nine Budget Boosters for Small Business & Entrepreneurs

It’s safe to say this month’s budget was rather overshadowed by Ian Duncan Smith’s spectacular resignation and subsequent government retraction over proposed disability cuts. However, there was some seriously interesting stuff in it for small businesses that I think got rather overlooked.

Bear in mind that Osborne’s budget (and everything most politicians do right now) is most probably dictated and influenced by their stance on the upcoming referendum on Europe, but this was clearly a budget designed to encourage independent small business – as that demographic is seen by the government as critical to the success of a ‘remain’ vote. Small businesses were even labelled the ‘clear winners’ of the budget, so let’s see what rewards have been reaped in the battle to win over SME’s hearts and minds…

Here are the Chancellor’s 9 budget boosters for small business.

Business rate relief – the threshold has been more than doubled from £6,000 to £15,000 for small business rate relief, while the higher rate has increased from £18,000 to £51,000. This will take many small businesses – they reckon over 600,000 – out of the system altogether and could mean your business pays no business rates at all, or at least significantly less – around £6,000/year. Osborne also added that in the future, business rates increases will be based on CPI rather than RPI, which should provide more realistic rates bills for retailers.

Self-employed NICs – from April 2018 class 2 National Insurance Contributions will be abolished for the self-employed, meaning you will only pay one type of National Insurance (Class 4 NICs) for profit of £5,965 or over per annum.

Income Tax threshold – from 2017 the threshold for paying income tax will be raised from £11,000 to £11,500, while the higher rate will also be raised from £43,000 to £45,000 for the 2017/2018 tax year.

Corporation tax – is to be cut from 20% currently to 17% by April 2020, in theory benefitting around 1 million companies according to the Treasury.

Entrepreneurs’ Relief Extension – An extra £10m has been added to the existing limit to encourage investors to back unlisted companies.

Capital gains tax – The reduction of capital gains from 28% to 20% and the basic rate cut from 18% to 10% will affect the sale of equity in businesses only (so not residential sales) and will apply from the start of the new tax year next month (April 2016).

Commercial Stamp duty – The chancellor has abolished stamp duty on commercial property sales up to £150,000 value, then set simple new bands of 2% on sales from £150,000 – £250,000 and 5% thereafter.

Sharing economy businesses – to try and keep up with the times, two new tax free allowances worth a combined £1,000 have been created for income on property you own and trade conducted through online sharing platforms.

Online equality – overseas retailers will no longer be able to store stock in the UK and sell online without paying VAT.

While these measures were widely welcomed by small business and entrepreneur representatives, it’s worth noting that in last autumn’s statement Osborne & the government announced cuts of 17% to the Department of Business, Innovation and Skills, as well as the surprise axing of the Business Growth Service – including the Growth Accelerator programme which helped an estimated 18,000 small businesses to raise over £100 million of finance.

Now they plan to pay for these budget boosters by cracking down on big firms and their flexible tax reduction practices such as offsetting debt interest against profits and using losses in one year to offset profits in another.

So let’s just hope Osborne and his team manage to do this more successfully than they have done to date, and that small businesses can finally reap the rewards of long overdue measures to help level the playing field.

 

WrightCFO Ltd is a Finance Director Consultancy for SMEs. If you think your business might benefit from an outsourced part-time FD, please get in touch.

sophie@wrightcfo.co.uk

wrightcfo.co.uk

wrightcfoblog.wordpress.com

@sophieLwright

Brexit or Remain-ian – what’s best for small business?

Ok, so I need to be clear about one thing. NO ONE is clear exactly what a Brexit will mean for business and anyone who tells you that they know for sure is plain fibbing. No one can know for sure whether we will be better off (economically, politically, financially) staying in or exiting – which is, after all, the bottom line.

So, how to make the call? I’m not going to try and make up your mind for you, we must all make a personal decision based on what we think will be the best – or least worst – option, but here are some points that I think are important to know and worth considering if you’re running a small or medium sized business and trying to decide whether to vote for ‘Brexit’ or be a ‘Remain-ian’.

1. Referendum – some argue the mere fact that the referendum is being held at all has been bad for small business by creating uncertainty in the market. Given we are where we are, many economists maintain the ‘safer’ route is to remain in the EU as the unknown quantities of a Brexit could add more uncertainty to the markets, thereby reducing investment and confidence further, which will inevitably filter back and hit small businesses. Cameron says, “The UK is safer, stronger and better off in reformed EU. Business will retain full access to free trade, single market, with secure jobs, investment and lower prices.”

• It’s important to remember that within Cameron’s recent renegotiation package, the UK was assured of its continued ‘special status’ within the EU, will be allowed to retain the pound and not be forced into ever closer union.
• Cameron argues that he has secured the best of both worlds for business by reforming the EU from within, thereby keeping jobs and investment secure and prices low.

2. Renegotiation. If Brexit is voted for in the upcoming referendum this June, we will not know what the terms of leaving will be until the two year period of exit negotiations are concluded. It is impossible to know what these negotiations will achieve and what terms we will be leaving on – ie better for business or worse for business. Some are arguing the case for holding a second referendum at this point, but to date Cameron has ruled this out.

• Cameron is currently against a second referendum as he says he’s done the best negotiation possible already but it’s worth keeping an eye on this as it would be important if he’s forced to concede this point.
• Is it possible that the EU could take renegotiations further if we initially vote Brexit with a second referendum offered once exit negotiations are concluded? There is no guarantee that this will be on the cards or that the negotiations will be concluded on any more favourable terms – in fact I would suggest it is unlikely. After all, the whole of Europe is watching to see what happens here and any concessions given to the UK could then be argued for by other member states wishing to exit.

3. Business Regulation. Pro-Brexit campaigners argue that we may regain some controls over our legislation and taxes if we no longer have to adhere to European directives and regulations (if the European Communities Act 1972 is repealed), but the reality is that on a day to day basis, the majority of laws regulating small business would not change that much. In addition, businesses could still have to agree to adhere to many EU regulations as part of any trade package, whilst simultaneously losing our place at the negotiating table in Brussels forever more.

• The UK could be forced to follow Brussels’ diktat to be allowed to continue to trade with European business without being able to take part in any of the decision-making process – as countries like Norway, Switzerland and Turkey currently have to do to various extents.

4. Immigration/Migration – A hot topic of course, but under EU rules it’s important to remember that the free movement of people works both ways, and any renegotiation would most likely restrict the movement and ability of UK residents to work freely in the EU, as much as it may make it harder for people to enter the UK.

• Depending on your business sector, migration restrictions may adversely affect your ability to source your workforce. It’s likely that a renegotiation would aim to restrict low skilled workers, whilst encouraging higher skilled and those with qualifications for hard to fill positions.
• This has already led to several large companies that could be affected to announce they would consider leaving the UK and relocating in mainland Europe in the event of Brexit.
• This could also reduce the number of companies coming to the UK to do business and this could obviously then have a detrimental knock on effect for smaller businesses.

5. Free trade. If the UK exits the European Union it could be made to pay tariffs on European imports and exports, potentially causing costs to rise significantly for British businesses, especially in some sectors.

• Because the EU and the UK are so mutually dependent on each other for trade they may not see the benefit of implementing tariffs, as to deter UK business would be a self-defeating exercise.
• Under Brexit, the UK could be free to negotiate its own import/export deals with other international countries – China/India/The US etc – possibly attaining better terms more quickly than going through the laborious trading agreement process within the EU. However, it’s important to note that these countries have already expressed a preference for us to stay within the EU and questions need to be raised over the bargaining power of the UK alone, as compared to within the EU.

6. And one last thing – The FT’s recent economics based article detailing three post-Brexit scenarios is worth reading. It’s deeply concerning given that in all three scenarios, UK business seems to be worse off. While we wait and watch the discussions continue, a study conducted by Capital Economics boiled the economic issues down into this table which I think is a really useful way to keep track of the issues and how they will affect UK business.

 

Sources of possible gains and losses from Brexit
Gains	Losses
Less regulation	Possible tariffs on exports to the European Union
Savings on European Union contributions	Loss of access to the single market
Ability to strike new trade deals	Damage to the City
Skills-based migration policy	Drop in investment caused by uncertainty

 

WrightCFO Ltd is a consultancy of Financial Controllers, Finance Directors and CFOs for SMEs in the London area.   wrightcfoblog.wordpress.com  wrightcfo.co.uk  @sophielwright

 

Sh*t happens. 5 key business risks.

We live in an unpredictable and volatile world. The only thing you can be certain about, is that life is uncertain.  Be prepared.  “Aon (provider of risk management) says that 80% of companies that fail to recover from a major disaster will go out of business”. Those are high odds which can be easily avoided if you have a plan. And it does not have to be complicated.

Here are my top 5 risks explained.

Business risks. These include increased competition and failure to innovate.  Are you doing more of the same because it works for you right now? Your competitors are currently working on doing what you do, but better and cheaper.  This is why you need to continually improve your product or service, keep up to date with technological advances and know what your competitors are up to. Don’t keep up – get ahead. If you have the luxury of being able to afford a new business development person, great. If not, then you’ve just added something else onto your job spec. Don’t be a Kodak.

Reputation risks.   “It takes 20 years to  build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” -Warren Buffet.

Here is a good article from Forbes on Ways to repair reputation damage. I think the most important thing to take away, is if something happens, a failure in some way, a dent in your rep, act immediately. Do not ignore it; NEVER let it fester.   It will snowball into a mountain of unpleasantness.  Call a board meeting, agree on a PR message which tackles the issue and get the message out ASAP.

Theft. In my experience it is not usually worth insuring company mobile phones against theft, but IT equipment insurance is essential and always outweighs the costs. Risk is easily mitigated. CCTV cameras are extremely useful in revealing the source of any thefts, (as well as  finding out if anyone secretly sleeps in the office!). The very sign on the wall showing there is a camera acts as a great deterrent.   Other forms of theft I have encountered over the years include misuse of company credit cards. Someone should always sign off expenses and check credit card receipts. No matter what level they are. Make it policy and lead by example.

Data Protection. You are legally obliged to protect personal information about your clients, suppliers and employees. Don’t get caught out- know the rules. The Information Commissioner’s Office (ICO)’s website is a wonderful resource. You can find advice and guidelines for direct marketing, holding customer information, a checklist for small businesses and much more. If you fail to keep up with the law you are at risk of being fined up to £500,000. Ouch.

IT risks.  A tornado, an earthquake or a comet pays you a visit. It’s all gone: client list, accounts, creative work, all of it. You’re on the cloud right? If properly set up, you should able to access everything from your safe location.  IT risk management can of course get a lot more complicated than this. But if you are small business starting up, I suggest choosing an accounts system and a server system which are cloud based.  It’s a good start.

It goes without saying, make sure you are properly insured for fire, terrorism, employers’ liability, director and officers insurance, professional indemnity, public liability. You can get a bundle business package which covers it all.

Want to read my blog as soon as it comes out? Please “follow” on bottom of page. I offer Finance Director consultancy services to small and medium businesses in the London and surrounding area. Please contact me if you’d like to discuss how your business might benefit.

website: www.wrightcfo.co.uk

email: sophie@wrightcfo.co.uk

Tel: +44(0)7817 784 603

Pressure’s on. How to handle the rise in staff costs.

Average pay rises are to jump to 3.5% according to the DailyMail today. Compulsory pension contributions are breathing down our necks.  And the government has announced a rise in minimum wage from October 2015.  All in all, staff costs are on the increase putting even more pressure on small businesses.

3.5% doesn’t seem like much.  So why should you care?  You should care because it’s a lot more money than you think it is.

Example   If you have a business with 20 employees, whose average annual salary is £45K plus 20% on-costs like national insurance and pension etc.  An increase of 3.5% will cost you roughly £38K a year.  Have you got this kind of money spare in your budget?

Keeping up with the current market

If you want to be an attractive company to work for and lure superb talent you need to pay market rate.  You can find out if you are under or over paying your staff by looking at industry specific salary surveys. If you are in the marketing communications industry for example and an IPA member, you can participate in their salary survey and receive the results. Not a member? You can gain similar information from  Major Players.  Otherwise, you can access a salary guide from Reed or from Morgan McKinley. There are literally hundreds online.

Let’s assume you need to follow the trend and increase your employees’ wages in order to stay competitive.  Can’t afford it? Don’t panic. You have options.

One path is to increase other benefits besides actual pay.  You can increase your employees’ happiness, loyalty and productivity (because happy people are more productive – fact) at virtually no cost. There is an amazing list here on Entrepeneur.com of low-cost perks. ‘Bring your dog to work day’ and ‘movie day’ are fun. I know personally, I would be willing to take a cut in pay if I knew my workplace offered work from home days and flexible hours to enable nursery pick up etc. If you can not offer great wages, then offer quality of life and work life balance.  These benefits rank higher on more people’s agendas then you might think.  And if they are provided with respect and trust, employees will repay you 10 fold.

Budget squeeze

Still need to squeeze out the extra pennies for pay rises? Here’s how to find a little extra room.

Headcount assessment. What does everyone in your business do? Do you even know? Do they add value? Become a lean machine by discarding excess weight. Harsh perhaps, but necessary. “Life’s tough kiddo” to quote my Dad.

Subscriptions. How many pretty magazines sit in your reception never to be opened? What do they cost? Are they ALL necessary?  And does every single director need their personal copy of the leading industry mag and the FT?   Smart companies have a rota. A small piece of paper with a list of names stapled to the front. Tick your name off when you’ve read it and pass it on.  That’s of course if you are still reading paper versions.  Online subscriptions are better. Have a company login. One subscription which you share.  Easy.

Example   You have 3 subscriptions to the FT for each of your directors. It’s the full newspaper and online subscription at £13.50 a week. Switch to one shared basic online subscription at £5.35 a week and you have just saved  £1,828 a year. Just share the company login. Now do it for all your publications.  You can probably easily find £5K.

Switch to cheaper contracts for your electricity and gas. You can use sites like Switch My Business or Energy Helpline . They find you the best deals for your area and your usage. You can save a substantial amount a year.

I suggest taking your overheads budget, and  go down the list one by one. Ask yourself, what is this? Is it used? Do we need it? Can we get the same quality for less money?

If you have done all of the above, and you are still struggling to keep your head above water, then you need to take a hard long look at your revenue stream. But that’s another story…..

Want to read my blog as soon as it comes out? Please “follow” on bottom of page. I offer part-time Finance Director services to small and medium businesses in the London and surrounding area. Please contact me if you’d like to discuss how your business might benefit.

website: www.wrightcfo.co.uk

email: sophie@wrightcfo.co.uk

Tel: +44(0)7817 784 603

 

 

 

 

 

 

 

How to boost the sales value of your company

If you are thinking of selling your business one day, even if it is in 5 years’ time, you need to begin boosting the sale value today.  If and when you finally sell, your buyers, their lawyers, consultants and accountants, will all be looking through your company’s past history… in extreme detail. Possibly for the previous 5 years.   Here’s what you can do now to make sure you get highest price for the sale of your business.

Growth. Steady, financial growth is essential. Have a clear written down plan on how fast the business will grow, and how you are going to achieve it.  When your buyer’s representatives are unpicking your year on year financial statements, they will be looking for anything that can lower the sale price. If your accounts reveal nice and steady revenue and net profit growth,  you’re singing.

Profits.  Very few people are going to buy you, or at least at a good price, if you are not even making a profit.  Do everything in your power to make a profit, and then increase it year on year.  Increase your revenues be it through expanding existing clients, or by winning new business, increase efficiencies and eliminate waste. Is work being duplicated? Are costs being duplicated? Do everything you can to maximise this.  A common way to value a company is to take their post-tax profits and times it by a number- let’s say 5 for example. In this scenario, if you increase your profit by £100, it has increased your sale value by £500. Every pound counts.

No skeletons. Skeletons in the financial closet= price slashing.  Have procedures and processes for most things, in particular everything financially related.  Have a folder for company policies which can be easily reached. They should include things like capital expenditure and sign off policy, expenses policies, credit control procedures- all the basics.  Your balance sheet accounts should be reconciled monthly when you close your books for the month. This may sound standard for many, but so many small companies wait until the end of year only to find a whole heap of surprises. Do you know what’s in your WIP account?  Be OCD.  Spring clean your accounts.

Contracts. Ensure your clients have contracts. They should include payment terms, what work is included and what would be additional cost, termination clauses and insurance coverage including who is  accountable for what.  If appropriate include IP rights. Ensure all your employees have employment agreements too. These should include anti-competitor clauses, especially for senior staff. When you sell a business, there is a risk that clients will go with their account holders should they leave, and not stay with the company. Mitigate this risk, (and avoid the risk being cause for devaluing sale price) by putting in this clause.

Succession planning.  It’s all about reducing risk. When you sell, the chances are once the earn-out is finished, you will be moving on to your next venture.  Who will take your place? Your buyers need to feel confident that business will resume as normal and that there is a plan. Hire your successors now. Train them, mentor them, be sure they are ready when the time comes. And that they want it!

Team.  And what about the rest of the team that make up your company? It’s not always all about the senior guys. Every single employee makes your business what it is. Make sure you have good, loyal, high quality staff who are happy and committed.  They, after all, are what your buyers are buying.

If you would like more information in regards to when to sell your company, how to sell or choosing the right advisor, B Gateway have some good tips here. Preparing to sell your business.

If you are an advertising agency and specifically desire to sell your company to WPP, Peter Levitan has a good article about what to consider. 8 tips on how to sell your agency

 

Want to read my blog as soon as it comes out? Please “follow’ on bottom of page. If you need Finance Director services, from a rolling contract to one-off financial health checks, please visit my website http://www.wrightcfo.co.uk, email me at sophie@wrightcfo.co.uk or call me +44 (0) 7817 784 603.

 

 

 

 

Sole Trader versus Limited Company – explained.

You’ve made the brave decision to go ahead with your business idea and work for yourself. This is great news. It also means your to-do list is endless.  One item that needs to be on your list, is choosing the right legal structure for you. This process can be daunting.  I outline below, in basic straight forward terms what the options are and why you would want to choose one over the other. The good news is, if the one you’ve chosen does not turn out to be the right one for you, you are allowed to change it.

I am going to compare registering as a Sole Trader versus a Private Limited company as these are the two options you most likely will need to choose between.

SOLE TRADER

What is it?

• Classed as self-employed.
• You are allowed to have staff (just because you are a sole trader doesn’t mean you have to do all the work yourself).
• You are personally responsible for the losses your business makes.
• In the same vein, you retain all profits of the business.

The paperwork.

• You need to complete an annual self assessment tax return.
• You have to pay income tax on your profits.
• You need to pay national insurance.
• You need to register for VAT if takings are more than £82K a year.

Why choose this option?

• You are unsure about launching your idea and want to test the waters first without making too much of a big commitment. Remember, you can change type later.
• Lower accountancy fees and admin expenses.
• You have privacy. There is no need to declare to the world how much you are making, unlike a limited company.

LIMITED COMPANY

What is it?

• A Limited Company is registered at Companies House and has a corporate personality. It is a legal entity. It can be further divided into private and public, but if you are a start-up, I’m going to assume you are interested in ‘private limited company’ as an option and are not quite ready to go public. One step at a time!
• The company is responsible in its own right – finances are separate to your personal finances.
• Profits are owned by the company after paying Corporation tax.
• Company can share its profits.
• “Members” are people who own shares in the company.
• “Directors” are responsible for running the company.
• The legal responsibility of running the company lies with the directors.

The paperwork.

• You need to file annual statutory accounts (it is a criminal offence not to do so).
• You need to send Companies House an annual return.
• You need to send HMRC an annual company tax return.
• As above, you are required to be VAT registered if takings exceed £82K. See advice below re flat rate scheme.
• A director of the company needs to fill in a self assessment tax return and pay any income tax and NI if paid a salary by the company.

Why choose this option?

The “limited” gives the company a bit more weight and appears to be bigger giving more confidence to potential investors, clients and suppliers. Banks also tend to favour limited companies.

Tax savings. Dividends of a limited company are subject to lower tax rates than self-employment income. (0% tax for basic rate tax payers and 10% for higher and additional rate tax payers). You can distribute dividends after 20% corp tax has been paid on profits.

Risk. Shareholders have no personal liability beyond the amount paid for the shares. If you do not succeed, and go bankrupt, it is the company that goes bankrupt, not you.

Raising finance. There is the option to raise funds by selling shares.

Top Tip

• Although you don’t have to register for VAT until you reach £82K income, you may want to register for it anyway. If you have very few purchases, for instance if you are a consultant, then you can register for the flat rate VAT scheme.  Under this scheme, you cannot claim back VAT on purchases (who cares? You don’t have any anyway) and although you can charge out 20% VAT you can pay back less to the government. Exact percentage depends on what your business sells exactly. Essentially, you get to keep some of the VAT. Hooray!

This is of course a basic overview and I am by no means a tax expert. But hopefully this clears things up a bit if you find yourself at this stage of your start-up set up.

Want to read this blog as soon as it comes out? Please “follow” on bottom of page. If you need Finance Director services, from a rolling contract to one-off financial health checks, please visit my website http://www.wrightcfo.co.uk, or email me at sophie@wrightcfo.co.uk. 

Increase profits starting today. 7 easy tips.

There are some simple things you can do today, to start increasing your profits without winning new clients. Making some minor changes to the way you do business will be barely noticeable to anyone- apart from you, of course, as you’ll know you are becoming more profitable.

1. Increase your prices. No really.   A small increase in price will not drive your customers away. Even if it does drive some away, it will be a small number and you will still be better off with your remaining customers at the increased prices. “Amazon raised its price of annual Prime Subscriptions from $79 to $99 in 2014. Despite the $20 increase, the company expected to lose less than 5% of customers, resulting in a hefty $400 million increase in income.” John Boitnott, Oct 7, 2014 “In a McKinsey study with the Global 1200, they found that a 1% price increase – if the demand remained constant – would result on average in an 11% increase in profits.  Not bad.” Richard Ruff, Feb 9, 2015 Getting the picture?

2. Price alignment.  Are you charging all your customers the same amount for similar products or services? Get everyone on the same price list or rate card. You may be charging some customers the same rate card you agreed when you signed the contract in 2005. Get up to speed.

3.Do not discount. It will be the death of your company.  Just as incremental price increases can increase your profit, so can the same incremental discounts be the death of you. Don’t do it. Emphasize the value you bring. Not the price.

4. Cash discount from suppliers. It is better to get a discount to pay upfront, rather than pay full price and delay payment, even if you are borrowing. Just ask. They can only say no. And the chances are they won’t ALL say no.

5. Check supplier bills. Do not assume that everyone invoices you correctly. Humans make mistakes. Are they overcharging you? Duplicating invoices? Do they add up? I have personally seen atrocious invoicing. Checking invoices from a film production company and questioning them once saved me (or rather the company I worked for at the time) £40K for one TV ad.

6. Same fixed costs, but cheaper.  Check your running costs. Don’t change what you’re getting. Just pay less for it. There is a lot of competition out there for basic business supplies. For instance, everyone needs electricity. But are you paying the cheapest you can for it? There are companies out there who will analyze your usage and tell you what the best rate you can get is and from where. And it’s free! The same goes with phone calls, broadband, even your stationery. Prices really differ from supplier to supplier for the exact same stationery.

7. Quotes for Capital Expenditure. For IT equipment, decide on a preferred supplier, which you promise to use as long as they always charge you 10% lower than if you bought directly from source. It works. I’ve done it. Their discount is more than yours so they still make a profit. Don’t worry about them -worry about you. For any other big ticket item, never EVER buy anything unless you acquired three separate quotes. Make this a company rule.

Want to read this blog as soon as it comes out? Please ‘follow’ on bottom of page. If you need Finance Director services, from a rolling flexible contract to one-off financial health checks, please visit my website http://www.wrightcfo.co.uk , or email me at sophie@wrightcfo.co.uk. 

Cashflow Management

There are countless reasons why businesses fail, such as choosing the wrong business partner, not listening to your customers or avoiding having a business website. But if you choose only one thing to get right, make sure it’s your cash. 90% of small business failures are caused by poor cashflow, according to Dun & Bradstreet.

Here are my top 5 tips to being cash happy.

1. Create a cashflow forecast. 

A cashflow forecast is a planning tool which can be very simple to set up and maintain. I suggest creating a weekly one which spans up to 6 months. To create your cashflow, use a spreadsheet like excel, start with your current bank balance at the top. List all your outgoings for the week underneath it, and the income you expect to receive from clients. At the bottom, you should calculate what your expected cash balance should be by the end of the week. Teach someone in your organisation to keep this up to date and track it’s activity. You will be able to spot very quickly why things may be better or worse then you expected and you will know what you can afford to pay out. Set targets for your credit controller to ensure it is given enough attention and ownership.

2. Agreed terms & conditions.

Have very clear payment terms which have been agreed upon by both parties before any work has begun. A clause in your client contract could say “Invoice will be supplied to Client once work is complete and Client will pay Company 30 days from the date of the invoice”.. for example.   Agreement to these terms should be written or documented somewhere, in case anyone has sudden memory loss.

3. Invoice quickly.

The sooner you get the invoice out the door, the quicker you will be paid. Devise a system whereby the person raising invoices is told exactly when a project is complete so that she or he can send the invoice out that day.

4. Have clear credit control procedures.

These procedures should be documented and part of your credit controller’s task list.  Call your client’s accounts payable department before the invoice is due to ensure it has landed in the right hands and there are no problems with it.   I have seen invoice payments delayed by months because the addressee was wrong, or the wrong purchase order was used.   Ask for a payment date and make a record of all calls to clients. If payment is late call again. Send statements once a month.  Be a very polite and friendly pain in the neck.

5. Keep your friends close and your bank closer .

Keep your bank informed of how your business is doing. Devise a plan B with your bank manager. This could be having a line of credit in place, just in case things don’t go to plan. You want something to fall back on well before you actually need it.

http://wrightcfo.co.uk