Empower Your Business

Accounting is Just the Beginning

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5 reasons why your annual financials are only part of the picture

Your annual financial statements have their uses, but if you rely solely on them you are only seeing part of the picture. 

Here are the reasons why — and what you need to do to see the whole picture.

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Trades, Service and Professionals – Setting Your Charge-out Rates

High, low or somewhere in the middle?  Where to pitch realistic charge-out rates is a common question facing trades, service and professional businesses.

In fact it’s probably one of the most difficult areas of business. You have to be careful not to underprice as this will reduce profits, but at the same time, overpricing could turn customers away.

Setting charge out rates is just as important as marketing and delivering a fantastic service.  You can do these two things excellently and then undo the lot by setting charge out rates too low or too high. This means pricing is a complex strategy that should be carefully undertaken and reviewed.

Your Value Proposition
Firstly, you need to decide where your products or services sit in terms of your value proposition. Simply put, you have four main choices, low price low value, low price high value, high price low value or high price high value, as can be seen on the graph below:

Adding Value graph

Some examples will help. Low price low value – $2 Dollar Shop?  High price low value – some firms of accountants who survive on their brand name alone!  High price high value – luxury cars?  Low price high value – those trying to buy market share as you wouldn’t normally survive very long!

To read more about deciding upon your value proposition and how this affects your prices, click here.

Know Your Overheads
Secondly, you must know what it costs you to operate your business before you start to set a charge-out rate. In particular, you’ll need to look at:

  • Annual budget
  • Working capital tied up in stock, work in progress and debtors
  • Cash-flow forecast.

Customers Don’t Choose on Price Alone
Once you’ve worked out your bottom line, don’t simply jump in with the lowest rate.  There is no doubt that charge-out rates are of concern to customers but contrary to what you might think, they are not the only thing customers take into account when choosing a supplier, far from it.  In fact astute customers tend to choose businesses primarily for reliability and honesty.  Other factors that enter into the buying decision include:

  • Quality
  • Technical and back-up services
  • Reputation
  • Turnaround times
  • Promptness
  • Friendly and caring
  • Offering a great service
  • Punctuality and tidiness for tradespeople
  • Location
  • Refund policy
  • Guarantees

It would help to do some research on what goes into your customers’ buying decisions before setting your rates.  For example, looking at what your competitors do and how they charge could be one way of determining what customers in your area are looking for.

Do your competitors offer round-the-clock and/or prompt service, do they give guarantees or are they renowned for quality work?  If they are flat-out busy yet charge a high rate, chances are customers care more about the service than the money they have to spend.

In the market place you’ll find many businesses charging 5%, 10% and 20% higher than their competitors, yet still run very profitable businesses. In fact these businesses are often the most successful because they have achieved excellence in those areas listed above.

Setting Prices Too Low
Clearly you need to base your pricing strategy on much more than price alone. So what does happen if you set charge-out rates at the lowest end of the market in the hope of attracting customers?

Some people advocate this is the only way to build market share in a competitive market. To increase profit margins you simply increase prices later once you’ve reached the desired market penetration. This strategy, however, comes with potential risks.

Once you’ve introduced a product or service at a low price, it creates a low price/value relationship in the customer’s mind, and once there it’s very difficult to remove. When you want to increase the price, you might have to spend a lot of money on marketing and promotion to change that image.

Understanding a customer’s perception on pricing is one of the key elements in developing pricing strategies for service and professional businesses. Most importantly, the lowest price is not necessarily the best price. Customers ultimately look for the best service at a realistic price.

Next Steps
If you need a hand with your pricing contact Nick on nick@abac.co.nz or 0800 ASK NICK who not only has many years of experience in this area but a very useful tool that can work out your charge-rates just by entering your overheads, budgeted profit and labour costs etc.

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Save Money by Getting Your Rates Back

Do you wonder sometimes why your Council rates are so high and what they do with all the money? Especially when you see Council workers (as hard working as I’m sure they are) using leaf blowers on the Havelock North to Hastings cycle path?

Finding the money to pay your rates is hard enough as it is, but when you’re in business and you have a bad year it’s even harder, so did you know you can get a rates rebate if your income drops below a minimum threshold? The threshold level varies depending on your income and situation, but for example, a household with an income of $30,000 and one or two kids could get a $600 rates rebate. And then, even better, you can take the kids to Splash Planet and get in cheaply with a copy of your rates bill!

For further details click here, or email Nick for help if you’re not sure what to do next.

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7 ways you can use your annual financials to improve your business

The availability of your annual financials is a wonderful opportunity to review your business performance. You can discover how to improve your business as well as refresh your enthusiasm and drive in the business.

Click here to read seven ways you can use your annual financials to improve your business.

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Protecting your business name

If, like many business owners, you’ve put a lot of thought and effort into your business name it makes sense to try and protect it from being copied, whether inadvertently (by someone who had never heard of you) or deliberately, by another, especially if you’ve linked this to a great domain name.

Unfortunately, it’s not easy to protect your business name in New Zealand as unlike elsewhere in the world, there is no register of Business Names. Yes they have introduced Business Numbers in New Zealand, but that won’t help. Here are the options: Read More

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How to succeed with cash flow forecasts

Preparing an annual cash flow forecast can tell you a lot about your business.

It can warn you with plenty of time to spare that you’re not going to have enough cash to survive the next year without getting additional working capital — which is vitally important to know.

Or it could be the wake-up call you need to make some changes in your business. You might need to make a tweak or two, like increasing prices or shedding ineffective staff, or you could discover something more serious, such as you’re in a twilight business and it’s time to move on.

Read more on how to prepare and read your forecast here.

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8 Vital Things You Need To Know about Your Business – Each and Every Month

Just how much do you know about your business? No, not about what you sell, or how you make or deliver your products and services, I mean the really important things that determine whether you’re going to make it through to retirement or maybe even successfully selling your business.

These are my top eight favourite things each and every one of us business owners should know about our businesses: Read More

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Simple Business Systems

I’ve said this before (and no doubt I’ll say it again) but I’m always surprised at the lack of simple systems utilised in owner-managed businesses. Using the word “systems” can be off-putting because people immediately think it’s going to be too complex, too costly or too time consuming but a system can be very, very simple. For example, it could be a referral system whereby: Read More

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Importance of Online Security

For some years now we have been told repeatedly that we must get online for just about everything, whether for software, apps, shopping, communication, data storage – you name it – we must do it online! It’s worrying then when there are regular headlines about the latest hack into someone’s data or whether someone has seen someone else’s data online accidentally. Read More

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Employment Issues – are you up with the law?

Guest blog from Steve Dukeson, Dukesons Business Law

If you’re an employer and you don’t see something wrong with each of the scenarios below, you need to accept that you don’t have a good understanding of basic employment law in New Zealand and that you need to consult someone who does. Read More