Empower Your Business

Accounting is Just the Beginning

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What extra work and fees are involved when operating as a Limited Company?

Ask_an_Accountant_1

Welcome to the first episode of Ask an Accountant. This is your chance to get direct answers to your accountancy, business & tax questions from business and tax expert Nick Roberts who founded the Accountancy + Business Advice Centre

This week’s question asks about if becoming a limited company was a good idea…

Press play to see the response

Would be great to get your feedback. Please comment below.

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Top Tips For Business Growth

20 somethingIt’s easy to sit back and enjoy the fruits of your labour and become comfortable with your current business position.  But don’t become too comfortable.  Isn’t that why you got into business in the first place?  To step away from that zone and challenge your way of thinking?

Always be aware of and listen to your market.  It’s easier to swim with the current than against it so make sure you are offering a product or service that people are actually buying.  Do your research and find out about your target market, their needs and their wants then provide something that delivers on these.

Business growth will come by changing your mindset.  If the market is not doing well, don’t look at this and use it as an excuse for your business not to grow.  A positive attitude is the first step towards growth.  If you surrender to your current situation, you’re not going to grow.

When you think of growing your business, don’t let it stress you out.  Try to do just a little bit every day, not everything.  Make concise lists about what’s important and what steps you need to take to ensure these tasks are completed, before moving on to the next.  If you don’t complete them on time, don’t worry too much but try to set realistic timeframes where possible.  Try to be as motivated as possible.  Be aware of productivity killers such as procrastination and distraction.

Productivity Killers

One of the most important elements to business growth comes from managing productivity.  This can be done by being aware of your habits and making basic changes to the way you work.

The wrong mindset. We all know that attitude has a lot to do with our productivity.  By having a more positive outlook on the day or week ahead, your motivation will accelerate and lead to better productivity.

Distractions.  Some people go so far as to remove distractions such as social media from the workplace.  However it wouldn’t actually matter what you removed, there is always something to distract us from our work. Whether it is the view out the window, personal emails, a fly in the room or idle chatter with a colleague, these are all productivity killers.  What we need to do is be aware of these distractions and learn to work through them.

Lack of routine. Without structure, it’s easy to become lazy.  Set a regular pattern and stick to it each day, and not just in your work environment.

Awareness and little changes over time to some of these productivity killers will subconsciously improve your work ethic over time and help steer your business toward positive growth.

If you need help with your business growth contact Nick on 0800 ASK NICK or email nick@abac.co.nz.

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Direct Marketing – An Essential Tool for Small Business

Small business is about identifying and servicing niche markets. If you know what your niche market is you have a fantastic marketing opportunity already at your doorstep – as long as you know how to reach it.

Knowing where the market is and how to reach it should all be written in your marketing plan. This is where you include all the information about the market in which you operate – what you’re selling, where you’re selling it and for how much, who else is selling it, who wants to buy it and who your specific target audience is.

Your marketing plan should also include how you are going to tell people about your products or services. The way you choose to market your business could easily determine how successful you become.

Marketing target

Advertising versus direct marketing

Where general advertising builds awareness and creates a positive image for a new product, direct marketing asks straight up for the order. It’s about going straight to your target group, often with a personalised letter, and giving them a direct opportunity to buy.

Direct Marketing is not advertising. It is selling to existing and potential identifiable customers and its result is measurable.

The whole concept of direct marketing is that it is direct communication to a particular target: either a current customer, former customer or someone who you believe fits the characteristics of your current customers. General marketing, on the other hand, is not addressed to any particular customer.

But for direct marketing to be successful, the business must have a database. This is where you collect as much information as possible about your customers – their demographics (contact details, age, occupation), how often they buy, what they buy, how much they spend and so on.

When planning your direct marketing campaign, decide which type of customers you want to approach. Whether it’s your top customers, or particular customers you think will genuinely be interested in the product you are promoting, the database should be able to tell you which customers to target.

Direct marketing, which can also use email, telemarketing or personal visit as a means of delivering the message, is a very powerful tool for small businesses because they can:

  • concentrate and dominate niche markets
  • generate additional sales from existing customers and new customers
  • generate sales leads from groups of persons who are very similar to existing customers

Test your product or service

Before embarking on your campaign make sure you are completely satisfied with the product or service you are selling to your customers. The last thing you want is for these customers – especially your top customers – to go somewhere else because of a faulty product you tried to sell directly to them.

Decide on a theme to be emphasised – keep it simple and focused; don’t fall into the trap of cramming too much information into the letter. Highlight one important aspect of the product, for example, price, quality, uniqueness, and use this as the theme throughout the letter.

You’ve got to keep the person reading from the opening paragraph to the order form.  Once a reader loses interest, it is likely the business will lose a customer.

As the responses from direct marketing are measurable, you can experiment with mail-outs on different themes sent to different groups of customers and analyse which strategy works best.

Next Steps – Plan Your Direct Marketing Campaign

  • Set-up a customer database – All direct marketing campaigns need the support of an up-to-date customer database
  • Determine your ‘top’ customers – The most successful direct marketing campaigns are likely to be targeted at your top 20% of customers who generate 80% of the business
  • Know your customers – Target other segments of your database depending on what you are offering for sale, as specific products or services will be attractive to some customers and not others
  • Plan your campaign thoroughly and test the product or service being offered
  • Maintain a theme throughout the letter. Keep the message simple, brief and focused
  • Make an offer they can’t refuse. Remember the ‘what’s in this for me?’ question
  • Contact New Zealand Post for information on mail-out discounts and for a record of the number of business and private households in each postcode throughout New Zealand
  • Measure the results of the direct marketing campaign. Think about trying something different next time and compare results

Tips on Effective Mail-outs

There is less chance of people reading your literature if it screams out to them:

                   THIS IS JUST ADVERTISING MAIL!

To overcome this:

  • Put your direct marketing letter into a plain envelope with an actual stamp and a hand written, or laser printed, name and address – not a label
  • Be absolutely correct with spelling of names and addresses as errors can really infuriate people
  • Use testimonials wherever possible in the letter
  • A photograph might be useful – make sure it includes people
  • Don’t approach too often as this will annoy customers
  • Freephone numbers can make it easier for your customers to contact you
  • Follow up phone calls – various surveys indicate following up phone calls can significantly improve the overall response rate

If you need help with your marketing contact Nick on 0800 ASK NICK or email nick@abac.co.nz.

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How to Avoid the Biggest Mistakes in Business Mistake No. 7 – Not Having Business Goals

Business GoalsMany business owners drift like flotsam and jetsam on the tide, being reactive to circumstances and with no idea of where they want to get to – it’s like setting out on a journey without knowing your destination. They say the average small business owner spends more time planning their annual holidays than they do in the business.

Having an attainable goal in business can be more important to success than almost anything that you do. Millionaires say they look at their goals every day but billionaires write down their goals three times a day.

Writing your goals down is the best way to reach your goals. At Harvard University in the US a survey discovered that in one particular class 3% of the students had written goals.  10 years later it was found that the net wealth of the 3% was greater than that of the other 97% combined.

Your goals might revolve around growing and selling your business. Or maybe retiring on a comfortable income or early so you can travel the world whilst you’re still young and fit, but it doesn’t matter what they are, it’s more important that you have goals to strive for so that you’ll be more successful.

To ensure success here are 9 questions to ask yourself when you’re setting a goal or goals:

  1. Can you achieve tangible benefits by achieving the goal?

.   2.   Would you be excited if you achieved the goal?

  1. Have you a real desire to achieve the goal?
  1. Is the goal specific and clearly defined?
  1. Is the goal attainable?
  1. Is the goal relevant?
  1. Have you written the goal down?
  1. Will you be motivated to re-write or re-read the goal every day?
  1. Have you set a realistic deadline for the goal?

A good way of ensuring you attain your goal is to work backwards and plan out the exact steps and benchmarks required to achieve your goal. Otherwise, your goal may just seem just too hard to reach. I have some great, real examples of how successful business owners have worked backwards over a 5 year period working out exactly what they need to do to move from where they are now to where they need to be to reach their goals.

Often keeping it simple is the key – remember the KISS (keep it simple, stupid!) principle? For example, just selecting one key goal that everything else fits around, such as growing your business by 25% a year. If you keep control of the other things in your business like your gross profit margin and costs then your business will grow successfully.

If you want help to set goals in your business contact 0800 ASK NICK or email nick@abac.co.nz.

 

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Success in a Post Recession World

Small Team Wins

Over the last few years I have often been asked “when will things return to normal?” My answer has been a paraphrasing of a recent quote from Jeff Immelt, CEO of American based GE, “This is the new normal”.

If your expectation is that business conditions will return to those we had pre the 2008 economic meltdown, such as easy access to credit or consumers who would buy on a whim you may want to think again.

What we are finding is that the key to success is increasingly about differentiation. As the economy starts to grow again and customers realise even more the power they have in their hands, businesses that can truly differentiate themselves to meet customers’ needs will come out winners.

In order to gain a competitive advantage in the post-recession world, you’ll need to differentiate your business in the eyes of your potential customers and in addition, be effective, efficient and systemised. Here are 8 steps to success:

  1. Plan: Develop short- and long-term plans. They don’t have to be extensive (just a couple of pages), but they must be action-oriented and give you some early wins to celebrate.
  1. Business Intelligence: Know your financial numbers so you can manage your cash flow and understand what is helping you grow and what is stopping you. Review your products and services through the lens of profitability.
  1. Focus on efficiency: By getting to grips with your financials you will see opportunities for efficiency gains. This can be little things, such as saving on power by switching off machinery off, or by talking with your employees who will often know where efficiencies can be made.
  1. Make the tough calls (early): Once you know what has to be done, do it and do it as quickly as you can. Engage the right people to help you so that you minimise any unintended consequences such as a personal grievance case over a badly managed redundancy.
  1. Cash flow: Cash is king so do everything you can to keep cash coming in. As part of understanding your numbers, work with someone who can go beyond the basic financials, for example, helping find ways to speed up the working capital cycle or assisting you with negotiations with the banks.
  1. De-clutter: Go back to your core purpose and focus on what matters. Cut loose unprofitable products or services you’ve identified through your financial review and, above all, keep focused on your core customers and suppliers.
  1. Innovate: Get to grips with what’s happening in the marketplace to highlight opportunities to innovate and differentiate yourself. This can be as simple as asking your customers about what they do and don’t like about dealing with you. Or, if you can afford it, market research through a respected research company can pay huge dividends.
  1. Marketing: Studies going back to the 1930’s show that businesses that continue to market themselves during a recession recover much faster than those that don’t. This doesn’t have to cost you a fortune. When talking with customers, ask how they found out about you. New media options are very effective in maintaining relationships with customers, but the research continues to say that personal recommendations through word of mouth are still vital and the most effective form of marketing.

Ultimately differentiation is winning out in the new economy and it’s all about thinking differently. As Albert Einstein said, “the significant problems we face cannot be solved at the same level of thinking we were at when we created them.” Challenge yourself and your team to do this, and your future success is much more likely.

If you need help with your business contact Nick on 0800 ASK NICK or email nick@abac.co.nz.

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Reviewing Your Business Progress

When was the last time you checked performance against your business plan?

The business plan needs to be under continual review to make sure you are successfully implementing each planned stage. It won’t be any use to you unless you use it.

By writing a business plan you’ve taken the time to plan in detail what your business goals and objectives are – it’s a living, working document, not something to be filed away and then dusted off for review in a couple of years’ time.

This concentrated thinking, discussion and debate is the key to the formulation of a workable and achievable business plan. And as long as actual performance is monitored against it, the plan should significantly assist in the long-term survival of the business.

Ideally you should review performance on a regular monthly basis, or at the very least on a quarterly basis. Ask the fundamental questions:

  • Where are we?
  • Are we heading in the right direction?
  • Will we achieve the goals and objectives of our business plan?
  • Should we review pricing structures?
  • What has been the effect of the consumer price index increase?
  • What has been the effect of price rises in our particular business?
  • Should we raise our prices?
  • Should the gross profit percentage be higher?
  • Have we got empathy with customers?

On an annual basis you need to compare actual financial performance to the budgets and cash flow forecast. Ask:

  • How did we perform?
  • What went wrong?
  • Have we learnt from the mistakes?
  • Did we exceed budget expectations anywhere? Why?
  • Can we capitalise on these improvements?

A valuable assessment is to compare your business figures to industry statistics (ask your accountant about obtaining this information).

You’ll also want to know: What is the general business climate in your area? Is it conducive to your type of business? Should you be expanding, drawing back or diversifying? What is the status of your investment in stock?

Don’t forget that the business review should also include an appraisal of what has been happening within your team. You need to look at:

  • Recruitment
  • Training and development
  • Meetings
  • Employment agreements
  • Wage/salary reviews

Use your business plan as a day-by-day, week-by-week, month-by-month reference point to compare where your business is against what you planned it to be. If there are any deviations, immediately investigate them and try to take corrective action.

If you need help with reviewing your progress contact Nick on 0800 ASK NICK or email nick@abac.co.nz.

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Marketing Made Easy – Search Engine Optimisation (SEO)

SEOYou may have a fantastic website but if no one sees it you’re wasting your money and time, so use Search Engine Optimisation (SEO) to make it more visible.

Search Engine Optimisation enhances the visibility of your website or web page in a search engine.  Leading search engines use software called ‘crawlers’ that scour web pages to find information that matches their search results.  The importance of SEOs is that people searching the web want prompt immediate answers and generally click on the first results they see.  Being at the top of the results list will mean your business is the first port of call, not your competitors.

When you use search engines such as Google or Bing, the results listed at the top represent companies with good SEO skills, meaning they have been savvy in order to gain a higher search ranking.

There are some steps to help your website or blog appear in a higher ranked position in web searches:

Keywords:  Include key phrases that are relevant to your business and that will direct people to your site.  If you want to find out what people have been searching for, Google provides a service where you can enter a particular word and they will give you statistics on how often it is researched on the web.  These results are also put into context in terms of what the search refers to, so you can streamline your key phrases and target prospective clients accordingly.  A key to remember is not to make your words too specific, or too broad.  They must always be relevant to be picked up in a search.

Cross-links:  Cross-linking is the process of linking two or more pages from your site together to increase visibility in search engines.  You can also cross link to other related websites that have agreed to be linked to yours in some way.  Do your research on cross-linking first.  Some search engines will penalise you for overdoing the linking within your site.

Up to date content:  When the search engines perform their regular crawl, they are always looking for new and updated content.  If your content is out of date, it may be missed and you automatically have decreased chances in gaining a higher ranking.  Remember to research, track and update keywords regularly.  If you feel overwhelmed or that your time is limited, there are many marketing and web professionals available to assist with driving traffic to your site, but watch out, there are plenty of sharks out there!

If you need help with your marketing contact Nick on 0800 ASK NICK or email nick@abac.co.nz.

 

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Buying a Business

Consentrating

Over the last six months there has been a marked increase in the number of business sale transactions taking place, as the overall business landscape and confidence continues to improve.

The problem is that for the buyer, buying a business is a very risky thing to do and before signing a Sale and Purchase Agreement the buyer needs to do due diligence, irrespective of the size or complexity of the business involved.

So what is due diligence and what’s involved?

Essentially due diligence is about doing your homework – opening the hood and having a thorough look at all aspects of a business. Due diligence assesses key risks and confirms your understanding of a target business is correct. Investigating and evaluating a business is a critical process in any business purchase. It should be a non-negotiable item on your purchase checklist.

A due diligence process typically involves three parts:

1. Financial

2. Legal

3. Commercial

Factoring in your investment for due diligence is essential – you need to consider the cost to you in both time and money if you get the purchase wrong.

The scope of the work undertaken will depend on various factors including size of the transaction, complexity, overall investment, the purchasers experience in the industry and whether you need external expertise. The scope of the assignment and what work is being undertaken by which advisor is important to understand. Make sure thorough checklists are used to ensure all critical areas are addressed.

Some important aspects to consider:

  • Confidentiality – an important consideration for both parties to ensure this is preserved throughout the process.
  • Level of information available – how much information is available and how much is enough to ask for so that the vendor is not put off by the deal.
  • Quality of information available – how accurate is the information? It should be validated to various sources.
  • Time frame to complete your due diligence
  • What are your motivations for acquiring the business? Are you looking for access to new markets, new technology and products, new customers?
  • Requirement for financial modelling – how will the new business be structured? How much debt will it have? What are the cash requirements of your new business?
  • Who are the key people in the business? Who is critical to the business in terms of relationships and profitability?
  • What are the key risks of the business – legal, financial, commercial – including having a thorough understanding of the marketplace the business operates in.
  • Understand how the business makes its profit. From which customers? Using which staff? At what time during the year?
  • What hours does the current owner work? Are they excessive and if so, are you willing to do the same?
  • What are the key trends of the business? Where is the business in its life cycle?
  • Are you looking to merge the acquired business into an existing business? If so what are the steps involved? What value will be created if you do?

A thorough due diligence process, undertaken by experienced advisors, gives you the information you need to make an informed new business purchase decision. While undertaking a due diligence process will not guarantee a successful business transaction every time, it does remove the emotion from the equation which can only improve your odds.

If you would like a copy of our excellent Buying a Business Checklist email me on nick@abac.co.nz.

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Key Performance Indicators

Measure

Many business owners completely in the dark, with no meaningful business information or management reports available to better manage their businesses. On the other hand, in my role as volunteer business mentor I meet many clients with reports from their accountants so detailed and complicated they just don’t understand or even read them. The best compromise is to focus on your Key Performance Indicators.

Key Performance Indicators monitor the things that MUST go right for your business to  be able to deliver your core products or services in a cost-effective manner which meet or exceed your customers’ needs, which are often called your Critical Success Factors. Having worked out what these are, start measuring them because as we know, what you can measure you can manage and what you can manage you can improve. Often, these are few in number so it’s normally possible to restrict the reporting to 8 or 10 of these Key Performance Indicators.

In many business types, the Key Performance Indicators are going to be the same or similar e.g. in trade or professional services where you’re effectively selling time and parts, materials or disbursements.

Let’s use a real example, a trade client of mine whose systems had not kept up with the growth in the business and where sales invoices were being sent out to customers several months late (if at all). In addition, the business was running out of cash so creditors weren’t being paid and huge amounts of working capital was tied up in work in progress and inventory, job profitability was mixed at best and labour productivity has slipped badly.

After I had helped recruit a new administrator and suggested and assisted in setting up some decent systems including timesheets, automated billing, perpetual inventory and job costing all by-passing the business owner (who previously had tried to do everything himself) we started to monitor, amongst other things, the following:

  • Labour productivity. By setting up timesheets (linked to the invoicing module) and both chargeable and non-chargeable activity codes we were able to keep track of both overall and individual employee productivity. Having set a target level of productivity, this enabled the business owner to focus on productivity beneath the required target.
  • Work-in-progress. For the first time, the amount of money tied up in work-in-progress could be quantified which was an eye-opener in itself. Targets were set for both business-wide work-in-progress days and individual job work-in-progress which enabled not only prompt billing but also the identification of potentially unrecoverable work-in-progress so this could be investigated and then billed or written off.
  • Accounts receivable days. Customers over 30 days were reigned in or sacked.
  • Inventory days. We now knew what we had in inventory which enabled the business owner to reduce the overall level of inventory and identify slow-moving items surplus to requirements.

Needless to say, we also monitored cash flow and profitability and quite a few other things, but only by exception – for example, we only worried about the detailed and individual overheads if they exceeded budget or the gross profit is this dipped below target. The important thing was that we were able to focus on the most critically important things that made the business tick.

If you want help to monitor the Key Performance Indicators in your business contact 0800 ASK NICK or email nick@abac.co.nz.

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The Pricing Conundrum – Where to Set Your Charge-out Rates

coins

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

In fact it’s probably one of the most difficult tasks. You have to be careful not to under price 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.

Pricing is a complex strategy which should be carefully undertaken and reviewed.

Know Your Overheads 

First of all 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

It would also be a good idea to start producing periodic accounting reports, say monthly, so you can check how the business is going compared to the budget. Get a good accountant (if you’re not in Hawkes Bay) to help you with these, otherwise ask me to assist via nick@abac.co.nz or 0800 ASK NICK.

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 which 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.

If you need a hand with your pricing contact Nick on nick@abac.co.nz or 0800 ASK NICK.