When an entrepreneur hits the wall of complexity….

I’ve been reading a great deal about entrepreneurs recently and they do seem to have some common traits:

1. Relentlessly optimistic
2. Ability to bounce back
3. Attention Deficit Disorder
4. Creative
5. Seeing the big picture and the future
6. Salesperson

I’ve also seen entrepreneurs display all of these characteristics in the early days of their business and see massive growth.  But after a few years they suddenly hit a very big brick wall…

This is the wall of complexity.

Their business gets to a certain size where the complexity has got to such a point where it is strangling the creativity and growth and sapping the entrepreneur of his/her energy.

The tricky thing for the entrepreneur is that a business at £200k a year is totally different to one at £1m a year.  There has to be a different rationale to management, software, systems, strategy.  Often, the business will grow quicker than the skills of an entrepreneur and eventually, the business will simply stop growing. 

Sometimes, the sheer amount of time taken up by managing the complexity of the business can suck all the sales and marketing time out of the entrepreneur.  Which is the one thing that got the business to be in the position it is in. 

If entrepreneurs are one thing, it is salespeople.  Selling to banks, customers, their team, suppliers.  That is what they do.  When a business gets to a certain level and the entrepreneur feels that he can’t leave his office because of all the things to do, that’s when you know you are in trouble.  The office is where you hide from opportunity.  The office is not where creativity flows.  Just think about the last great idea you had, I bet it you didn’t have it in the office. 

However, the complexity of a business DOES need to be managed, so the bottleneck has to released. 

In future posts, I’ll explore how….

How I became a chartered accountant….(slightly more interesting blog than appears, but only slightly)

I don’t want to totally bore you but to illustrate my point for this blog, I’ve got no option but to give you my complete educational history of how I become a chartered accountant!

I started school at 5 and was the second cleverest child in my school.  It was a small school and there was a girl called Jennifer Tucker who was cleverer than me (this probably is still the case).  Jennifer went on to a grammar school.  Yours truly, failed the 11+ (I actually physically cried in the exam no less) and went to the local comprehensive.

I didn’t particular enjoy school and at aged 15 decided to bunk most of the last year and study for my GCSEs by purchasing a load of revision guides (I remember staring up at them in WH Smith thinking ‘I can’t believe all the answers are in these books, I don’t need to go to school anymore’).  I say ‘bunk’, in my defense, my mum had full knowledge.  Amazingly, I didn’t get caught until the penultimate last day of school.  Unbelievably, I still got told off.

Anyway, I passed my GCSEs well and went to the local sixth form college (NOT school, no uniform and we called the teachers by their first names).  I had a great time there and I picked up 3 A levels a long the way.  Unfortunately, nobody told me that to get into university you had to do well in your first year, so I was rejected by every university I applied to except for Leeds (including Oxbridge, a slight that I am planning to rectify by living my educational ambition through my son).

So I went to Leeds and studied Theology and Religious Studies.  I subject that I adored and still do. 

I worked really hard for my GCSEs, really hard for my ‘A’ levels and decided to work reasonably hard for my degree, which I got 3 years later.  I then got a job at Grant Thornton as a trainee chartered accountant.  The firm was fantastic.  However, the exams were incredibly difficult but after 3 years I finally qualified as a chartered accountant in 2001.

I started school in 1982.  It took me 19 years to qualify as a chartered accountant.  You can’t qualify in less time.  Do you know how long it took me to ‘qualify’ as a business owner?  About 5 minutes (if that). 

It’s impossible to be a success in business without the learning and education.  This can take all forms but the person who just starts and then grows a business without the hard effort of learning, well, they are few and far between.  The successful business owner realises that anybody can be a business owner but it takes a great deal of learning to be a successful one.

How to pay tax at 10%

If I was to ask you, “what rate of tax do you pay”, you probably wouldn’t answer 10% (because the chances are that is not the correct answer).  However, there is a way to only pay 10% and it is relatively simple (although not easy!)

The government has been increasingly keen to reward entrepreneurs and investors in business by making the tax on investment and selling businesses increasingly attractive.  So much so, that there is a way to only pay 10% on significant earnings and by significant earnings I am talking £10 million.  It was originally £5 million but this has now been doubled.

Here’s how to do it.

1. Start a company
2. Have another source of income which is not from the company you have just started (crucial)
3. Take no money from your company for yourself….ever (hence step 2 is what you will live on)
4. Grow the business rapidly
5. Sell the business for £10 million
6. Pay tax at 10% using entrepreneurs relief
7. Pocket the remaining £9 million

Good eh?  Okay, it’s not technically correct.  You have to rely on income outside of the business and you will be paying tax on this income.  Also, presumably profits will be made every year (for you to eventually sell a company for £10 million) and corporation tax will be charged on these profits.  The corporation tax will be 20% and this will be every year and could increase if your profits go over £300,000 a year.

But taking both of these things into account, it’s still true to say that you only pay 10% on the capital growth of the business that you have started.

You don’t even have to just have one business.  You could grow several businesses and sell them and be taxed at 10%.  The catch is you have a lifetime allowance to use the entrepreneurs relief (which gives you the 10%) of £10 million.  If you go over this, you will be taxed at higher than the 10%.

 

 

I didn’t realise this but we actually offer 44 services for our clients…..

It’s a classic thing in business, you spend all your money and effort and time trying to attract and woo new customers to your business whilst neglecting your existing customers who are 7 times more likely to buy from you and don’t require marketing spend.  More than that though, if your business is set up to help your customers, the worst possible thing that you can hear from a customer is ‘Oh, I didn’t know you did that, I asked someone else to do it’.

I’m giving a 10 minute presentation at my networking event tomorrow and decided to list out all our services that we do as a firm just in case anybody in the room didn’t know.  I was literally astounded by the amount of services we offer – 44! 

So as a personal experiment for this blog, if you didn’t know that we did any of these services, please email me at russell@rsaccountancy.co.uk.  I will then report back my findings.  If we get quite a few, it means one thing – you could be in the same boat, do your customers or contacts know everything you do?

Have you forgotten that you even offer some services?

Here’s the 44 services:

Compliance                                        Tax minimisation                                             Business Support

Annual return                                   Advanced tax strategies                               Enhanced bookkeeping
Bookkeeping                                       Business tax planning                                     Budgets              
Company Closure                            Capital gains planning                                     Business plans
Company Secreterial                      Company car planning                                   Cash flow forecasts
EC Sales List                                        Goodwill valuations                                        Financial systems + controls
Grant letters                                      Incorporations                                                  Due Diligence
Meetings                                             PAYE healthchecks                                          Business growth meetings
P11Ds                                                    Personal tax planning                                     Due diligence
PAYE                                                      Research & Development                            Management accounts
HMRC Payment plans                    Tax credits                                                          Modelling
Professional letters                         Tax efficient remuneration packages      Helping with recruitment
Personal tax return                         VAT healthchecks                                            Share prospectus
Statutory accounts                                                                                                          Business valuations
Corporation tax returns                                                                                               Business growth software
Share work                                                                                                                         Software training
Tax investigation work                                                                                                 Fee protection

 

As an aside, if anybody from the networking group is reading this ahead of tomorrow, I am about to go and shine a very nice new pair of shoes – see if you notice them!

The importance of a solid finance function in a business

Imagine your business is 3 circles.  1 circle is sales and marketing, 1 is operations and 1 is finance.  At any point of time, 1 of these circles will be putting pressure on the other 2. or 2 will be putting on pressure on 1. 

For example, if you have a fantastic sales team and you are winning lots of sales, this may put pressure on operations to deliver or it may put pressure on finance since you may have spent money on marketing but the money from the new customers will not be arriving for another month.  Or, operations is geared with up with team members but doesn’t have enough work, this puts pressure back on the sales and marketing function and on the finance because wage costs are being spent without the resulting top line.  Or, finance is putting pressure on sales and operations because cash is tight and the sales team are unable to have money to spend on sales and marketing and operations don’t have money to spend on training or recruitment for new team members.

These 3 circles will get bigger and smaller depending on where your business is at and it is unlikely to remain the same for long.  However, it is the finance function that will be tracking this pressure and if you have a solid finance function in your business it will be doing more than tracking – it will be predicting it, in the best cases – months in advance.

A solid finance function will be able to predict gaps in operational teams, under-performance in the sales and marketing and future cash crisis because of a slowdown in debtors paying.  The finance function will also be able to track profitability, by product/service, by team member and by customer or client. 

The finance function can ensure the business doesn’t stray off track and can give enough notice on future problems so that the directors of a business can plan a way around.

How solid is your finance function in your business?

When the numbers don’t add up: identifying the parts of your business that are unprofitable

If you look at your profit and loss account, you’ll clearly see your sales, expenses and profit.  What you don’t see on a basic profit and loss account is the division between the different products and services that the business offers. 

Most businesses will have core services and some additional services or products.  It can be very difficult to separate these to find out which ones are making money and which are not.  Accounting wise, the sales part is the easiest but then the job of allocating overheads and the time of your team on certain aspects can be a fairly big job.

The reality is that your business will have parts that are costing you money.  When we have undertaken the task for clients to find out exactly where the profit is coming from, the client has always been struck with the results.  It almost never seems to correlate to what they believe.  A business can’t argue with the empirical data (although it may try) but it could still carry on with an underperforming product or service because it believes that it has a future.  The tricky question that comes is how long do you carry on?  When do you pull the plug?

A question for another blog post perhaps, but the point is that at least the business knows and has identified the loss making part of the business.  At least then the action can be taken to carry on, improve or to get rid.  Loss making parts of the business can often be understated because the directors and managers of the business do not allocate the management time accurately and the loss making parts of the business are often the ones with all the problems and problems consume management and director time.  So you end up with an unfortunate double whammy of a product/service that doesn’t work which attracts costly management/director time that could be used on developing other products or on the more profitable products/services.

The point is, if you know your numbers, you get the chance to make a decision.

How many coffees should you make for your colleagues?

A few years ago, I was spending some time in America with my American family.  We were sat around in the sun in a garden eating burgers chatting about our work and work place etiquette.

Now if there’s one thing that’s true about Americans is that they really know how to work.  I’m not sure work/life balance has the same resonance there.  They work longer hours than us in the UK and they have less holiday.  It’s fairly obvious really when you think of where America is after only a couple of hundred years, the work ethic or American dream is hard-wired at birth.

Anyway, I got the feeling that work place etiquette was slightly different to ours in the UK when it was revealed that none of my family would make a cup of coffee for any of their colleagues.  All of them were in senior management or partners so it wasn’t like they had to make coffee BUT, all of them refused to make coffee – ever.  And it wasn’t like they all had a coffee machines, they didn’t, they saw it as a loss of face, as a reversal of the office hierarchy and something that, not just they didn’t want to do, but believed that it would be perceived badly by their bosses if they did.

I was fairly take aback by this and dismissed it as just Americans being, well, Americans.

Until I got back to the office and realised that my coffee-making had taken a dip.  Soon, I was never making a coffee for anybody.  Although, I was being made a coffee fairly regularly.  In my head, I justified my coffee production no-show by reminding myself that I was very busy and didn’t have time.  But surely there has to be enough time in the day to make a coffee for more than yourself?  And if there is, how many coffees should you make for your colleagues?

Would your customers vote for you in an election?

When politicians get beaten up by the electorate and lose seats, they often cite the need to listen and learn from what the general public are saying.  This implies that, even on the campaign trail, they were not listening to the voters and not understanding their concerns.

‘A week is a long time in politics’ is a famous political quote meaning that what worked and was celebrated at one point in time, could be attacked and demolished very quickly.  David Cameron will be regretting the last 6 weeks as his largely untroubled government spectacularly unravelled.

Business owners find themselves in a very similar position to politicians. 

A business is there to serve its customers.  The moment a business loses focus on this, the moment customers will become disgruntled and leave and it can happen very quickly.  Customers know if you are thinking about them or thinking about yourself, they can pick it up very easily.

What has worked with customers at some stage can rapidly not work fairly quickly.  The market changes at a rate faster than any time in history.  Unless a business owner is on top of this, in a broad way and a sector-specific way, they can quickly see themselves squeezed out of the market position by younger, hungrier, smarter, more ambitious competitors.

So if you are having a great year, remember that complacency is one of the biggest killers of business.  If you are having a tough year, put customers at the heart of your operation and truly understand what they are saying to you about their needs and whether your business meets those needs and contributes value to their lives.

You may not want to react like the prime minister tomorrow but the battle for business success never slows down and the business owners who are willing to fight will often come out on top.

5 ways to grow your business….

There are lots of business models out there on how to grow your business.  One of my favourites is the 5 ways model by Brad Sugars of actioncoach.  This is a simple way of looking at your business and highlighting the 5 levers you can pull to increase your profit.  The assertion of the model is that you can’t increase turnover and you can’t increase profit, you can only increase the 5 numbers that rest behind turnover and profit.  These are:

1. Number of leads

Out of the levers this is potentially the most expensive since increasing your leads will either cost you money or time (which is money).  Of course, there are simple things you can do to increase your leads with little effort such as asking your current customers to refer you.

2. Conversion rate

This is my favourite and one of the easiest to see an immediate impact.  Increasing the number of leads that convert into customers can be done at a higher rate simply by following up with your leads, making sure the initial enquiry is responded to quickly and showing a prospect client testimonials.

3. Average number of transactions per customers

It’s 7 times easier to sell to your existing customers, so increasing the number of times a customer buys from you is often much easier than increasing your leads

4. Average sale per transaction

Your price says a great deal about your business.  Pricing is an art and a science and above all pricing should be a marketing strategy in itself.  Increasing the sale per transaction will give you automatically higher profits although as Ben and Jerry know, increasing your profits has to be sustained by a product or service that the customer values.

5. Profit margin

Cost control, efficiency, suppliers, margins.  All these things can be increased to maximise your bottom line.

I could go on about this, but I’ve just come back from the cinema after watching ‘The Cabin in the Woods’ for the second time and am going to bed!

11 4 3/4        10 12

I believe that my waistline is expanding but I’m not sure why….

Today, one of my team members who will remain nameless (actually I will name him – it was Hahtem!) mentioned, right in the middle of a conversation about something business related, that my waistline had expanded in the last couple of weeks.

My wife this evening has confirmed this tonight (as she handed me a hot cross bun….in bed!).

Over a 18 month period, I lost 2 stone.  Here’s how I did it? 

1. I stopped eating in-between meals
2. I stopped eating chocolate, cake and crisps
3. I started to sporadically run round the block

and here’s the really important 4th point:

4. I weighed myself every day

Now, if you read any diet book (I quite liked ‘I can make you thin’ by Paul Mackenna) they will tell you to only weigh yourself every week (and some books will tell you not in the first fortnight of dieting).

However, I am an accountant and if there’s one thing I believe in more than anything, it is the power of KNOWING your numbers so that you can track your progress.  What you measure will improve.  I’ve seen it time and time again across different businesses and across different parts of the business.

I even saw it in my 28 pound weight loss 18 months ago.

So, back to the story – Hahtem and my wife think my waistline is expanding.  There’s two things I can say about this.  Firstly, I think they are right.  Secondly, I only think they are right, I dont’ know they are right because I have not weighed myself for the last 7 days.  So, basically, I have no idea on the number.

What’s at stake here is my good looks.  But when you apply this to your business, unless you know, track and improve your numbers, eventually your customers and others will begin to see that you are getting a bit flabby around the waistline and go elsewhere to a better, fitter more attractive competitor.

As a ‘reality’ live experiment, I will show you how tracking your numbers can improve the number by recording at the end of my blog my actual weight and target weight.  I will record it right at the bottom of every blog so unless you have read this blog post, you won’t know what the numbers are for.

Now for that hot cross bun, I mean apple.