Small business

Your Virtual Accountant

Today was like many others, but perhaps a world away from just a decade ago for an accountant and client working together.

We wrestled through bank reconciliations, talked through accountancy adjustments, mulled over cost-drivers and shared insights around areas for growth.

We were face to face and looked at the same screen with the same figures. Perhaps nothing particularly strange so far.

Yet we were 100s of miles apart.

We worked together all day. Like we were in the same office (but we were far from it). This was made possible by Google Hangouts, online banking and cloud accounting software (Quickbooks today).

Don’t be restricted by geographical boundaries when seeking financial and tax advice for you and your business. Get the best accountant and tax advisor you can – no matter where they might be….

 

Chat with Ian Sanders: Entrepreneur, Writer, Author, Ideas guy

Ian Sanders Chat from Business N2K on Vimeo.

Here is a talk with Ian Sanders (entrepreneur, writer, published author and all round ideas guy) on business, entrepreneurship, story-telling, productivity, education and making it as a successful business in 2013.

Please note that this talk was recorded back in Feb 2013 and is now released having solved some technical issues – entirely my fault ;)

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How much money should I take out of my business?

Williams [and] Young Britt (LOC)

A common question asked by business founders and entrepreneurs is how much of the profit generated (after paying all expenses) they should leave in the company – or put another way:

“How much should I pay myself?”

Here are two scenarios:

William pays himself enough to live off, pay the bills and take the family away for a well earned holiday abroad each year. The remainder he leaves in the company to strengthen its balance sheet and reinvest in new products, services and people as the opportunities arise (as well as protecting against a sudden unexpected ‘black swan‘ downturn in the market). William is mindful of the risk that carrying too much cash could interfere with the trading status of his company in the eyes of the tax authorities and this is kept under review by his trusted Wing-Man (his accountant).

Meanwhile, Harry strips the majority of the cash out of his business each year leaving some to protect against downturns. He works with his accountant Wing-Man to manage the tax efficient extraction of the profits to avoid any unnecessary tax leakage.

Which strategy is right?

It depends on the goals and aspirations of the founders plus the opportunity cost of either extracting or leaving the cash in the company.

As an entrepreneur you are both a wealth creator and an expert capital allocator. So you must have a plan as to the optimum way you can deploy and allocate the wealth you create for maximum future returns.

If you adopted William’s strategy and stripped most of the profits out you had better have a good plan as to how you are going to deploy that cash to get the best return on your capital. For example, are you going to invest in new ventures, back some promising entrepreneurs as a business angel (SEIS might be of interest?) or perhaps invest in property?

Leaving the cash on deposit in your current account is not a good strategy.

On the other hand, if right now you see plenty of opportunities to get a good return on your capital in the business then leave it in there and take some small bets on new products, services or other initiatives and build from there.

Back to the question and answer: it depends.

There is no definitive answer as it depends on a number of factors including:

  • your goals
  • where your business is up to in its lifecycle
  • what opportunities exist inside your business
  • what opportunities exist outside your business

Always good to discuss your personal strategy with a trusty Wing-Man….

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5 tips for securing funding – Bill Morrow: Angels Den

Bill Morrow, founder of the Angel Network, outlines 5 top tips for entrepreneurs seeking funding from VCs:

  1. Make sure you can explain your business quickly and succinctly. If it takes you more than 5 minutes, then you’ve yet to get it nailed. Back to the drawing-board for you!
  2. Outline the pain that your product or service will solve.
  3. Explain how your business will solve this pain.
  4. Enthuse investors with the opportunity for growth and how you will achieve this – how will your business scale to achieve the 5x + return on investment for your investors?
  5. Set out clearly how you will spend the money that you are requesting.

Morrow also explains how it helps for entrepreneurs to “humanise” interactions with potential investors, where possible. If you can build rapport by indulging in a bit of chit-chat about the cricket or football etc then this helps build relationships beyond business.  After all, you may have to work with each other over a number of years, so its important that you can get on outside of business-talk.

Good advice. Listen to this podcast in full over at Smallbiz pod.

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Finding your true North

Richard North, Managing Director of Wow! Stuff, provides some great advice for entrepreneurs:

“You are either an employee and you are prepared not to take risks and end up with a bonus or you become an employer, you take risks but you also end up with the rewards”

Despite selling his first business for a 7 figure sum is next venture (boystuff.co.uk) came back to bite by heading into administration in 2005. His explanation for the business downfall sounds counter-intuitive yet it is a common reason for many business failures:

“We ended up with too many people on board and too many ideas on strategy. We tried to do too many things in a short period of time”

He goes on to say:

“I had become remote from the business as there were so many people running it, so I wasn’t feeling that emotional, but what did feel emotional was that I had lost huge amounts of money”

This is where the power of leverage can go horribly wrong – leverage of people and money. In an effort to grow a business fast, it can start to lose direction and when more and more (external) strategic heads get onboard then the founding entrepreneur can start to feel disempowered and disconnected from their ‘baby’ – this can be acutely common in VC backed businesses.  Often resulting in lights out.

North appears to be growing his latest business more gradually with a focus on a handful of products that will succeed and best of all, he appears to have rediscovered his passion for his latest venture.

Good stuff. Read more at Director

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Preventing potentially expensive business balls-ups!

It’s been a busy start to the year so far. It’s nice to see businesses that I’ve been talking to and getting to know for a number of weeks, months (or in some cases years) reach critical points in their business lifecycle in either starting new ventures, seeking and raising funding or selling their businesses.

I’ve been privileged to work alongside and advise these businesses across all of the above scenarios in just the past week alone and have sought to put them in the best possible position (and side-step any potentially expensive business balls-ups!).

Having the benefit of working alongside and advising growing entrepreneurial businesses every single day allows me the benefit of spotting latest trends and recurring issues which in turn allows for practical hands-on advice to be passed on – in nearly all cases aimed where possible at ‘prevention’ rather than cure – as digging businesses out of holes that they have inadvertently created is normally a whole lot tougher (and more expensive) than getting things right from the outset.

This is where a good relationship with an accountant who is familiar with your sector can help. Even if it’s just to meet up for a coffee and chat. There’s no need for this to be overly formal or regimented. We’re here to help.

If you’re in the digital, tech or media space (or simply an ambitious business with BIG plans) then please get in touch. It costs nothing to have a chat. I would love the opportunity to show how we can help.

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How to get to grips with your business finances

It is easy to get caught up in ‘doing’ rather than ‘running’ your business.

So many business owners find themselves running simply to stand still – finding new customers, taking and fulfilling orders and addressing (hopefully not too many) customer complaints.

Sometimes its difficult to see the wood for the trees:

I’m really busy so I must be making money – right…?

Not necessarily.

Understanding your business finances

It is understandable that, at the end of a busy day working in your business, you would prefer not to review your business finances. But if you don’t understand the numbers that your business is producing then how will you know which bits are working (and profitable) and which bits of your daily work are simply a waste of time and effort?

I frequently recommend that owners of new businesses sit down (at least weekly) with a pencil and journal (yes, that technical!) and write out the week’s sales figures and costs by hand. I find that there is something more insightful about using a pencil and paper compared to an excel or similar spreadsheet – perhaps its the exercise of writing by hand that makes you think more deeply about the figures and how they connect (or not…).

At its most basic, to write out your sales income (ideally split across services or products) and associated costs, will give you a much clearer view of what is profitable work and what is unprofitable – the figures rarely lie. You would be astounded how few entrepreneurs do this simple exercise – and by the number of business owners whose jaws hit the desk when they realise why (or even that!) they are losing money you can tell they wish they’d done this far earlier!

Moving on from pencil and paper to the day-t0-day, I’m a big fan of online cloud accounting packages like Xero as they provide a live dashboard view of the health and performance of your business. Now with live feeds across the majority of UK banks, entrepreneurs can get a realtime view of the health (or otherwise!) of their business. The bank balance is clearly there to see plus debts receivable as are costs payable. Cashflow is absolutely king for all businesses so the ability to see how much cash is in the bank, how much is due in and how much is due out at any one time is crucially important if you are to be in the driving seat in running your business.

Don’t get put off by accountancy mumbo-jumbo, simply by taking the steps set out above on a daily or at least weekly basis, you will be streets ahead of many of your competitors who are ‘busy being busy’ with no clear focus or direction on what works for the future of their business. Try it. Let me know how you get on.

If you are a digital, tech or creative business and you would like some assistance in getting a better grip on your business finances then please drop me a line.

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VAT growing pains for virtual UK business

Interesting comments from Ryan Carson of Carsonified in response to questions regarding hidden challenges lurking in global business via the excellent Duct Tape Marketing. He singled out dealing with VAT as one of the single biggest challenges in growing his UK training business to become a global player commenting:

Image representing Carsonified as depicted in ...
Image via CrunchBase

The laws surrounding tax here aren’t written for the Internet age and don’t really make any sense. It was tough getting a straight answer from the tax man about who we needed to charge tax to and how much. Nightmare!

So true. Yet there have been further changes to VAT introduced this year to add to the confusion and administration. ‘Place of supply’ rules for VAT and determining which services are standard-rated, zero-rated, exempt etc are all routine causes for concern for UK businesses – such issues cause much head-scratching for many accountants let alone business-owners.

We need to simplify VAT administration for UK businesses especially when much of it comprises unpaid form-filling for the government e.g. EC Sales List, Intrastat etc let alone unpaid tax collection! And don’t get me started on the ‘reverse charge mechanism’!

Ryan Carson wisely sums up his advice for UK businesses looking to expand beyond UK shores by saying:

Call your accountant and check tax laws. It’s tough, but once you figure it out, it’s a huge new opportunity to grow your business. Just do it.

Expanding overseas is a minefield for the unwary with rules and regulations above and beyond VAT to contend with, however, by following Ryan’s advice in the above order a supportive professional accountant should be able to walk you through the process. Better to invest a little upfront and get it right, rather than have to unpick a series of potentially expensive cock-ups further down the line.

P.S. Get ready for the change in standard rate VAT from 17.5% to 20% from 4 January 2011.

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Business technology solutions: Keep it simple

Few would doubt that technology is set to be a huge enabler for small to medium sized businesses (SMEs) as most have been largely underserved until recent years. We are only now starting to see some more user-friendly enterprise software e.g. for accounting, CRM, communication (internal and external) etc, that help SMEs compete on almost a level playing field with larger enterprises (who have larger budgets).

Aaron Levie of Box.net makes some interesting points about the opportunities for enterprise software providers and business users. He stresses the importance of enterprise software developers removing the shroud of tech jargon and complexity around enterprise software and instead focusing on providing functional yet simple core products capable of being modified to specific business needs. Levie states:

There will always be a few really complex problems that require complex solutions. But for the vast majority (read: 95%) of use cases, simplicity will suffice. Where complexity is necessary – whether it’s to build a specific workflow, integration, or solution for a particular vertical – solve it through customization. Abstract the core areas of your product from the parts that can be modified by a developer or customer, making sure the core and default use is still simple. The best products in the world can do as much or as little as customers want without you having to think twice. The economic upside of this is obvious, of course, as you’ll now have a rich ecosystem of integrators, value-added resellers, and professional service firms that can participate in your success.

Did he say 95%….?!

We have already seen how superb consumer software such as Apple‘s iPhone or Google’s Android platform can be transformed by third party modifications and developments. What if we could apply the same principles to SME business software?

What business enterprise solutions are catching your attention?

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A new breed of successful business

It is time to change how we measure and interpret success for businesses today. To introduce a definition of business success that is more aligned with our changing business environment i.e. a drive for innovation mixed with a growing distrust of large corporations and lower cost of starting new businesses.

It used to be the case that, to be considered a “success”, a business had to be BIG and have been established (almost) forever.

As a consequence we saw businesses undertake huge expensive acquisition trails to bolt on new businesses and build themselves as big as they could as fast as they could. Its not hard to find talented individuals who have been on the receiving end of redundancies introduced post acquisition to “maximise synergies”. Hoped for synergies rarely play out in the end.

BIG was once good.

Similarly, Jim Collin’s landmark “Good to Great” was attacked as many of the “great” companies profiled in the book went under or got taken over not long after publication. Critics singled out crusty old companies as better examples as these had survived since say the 1880s.

Being able to prove that a business was old and crusty was once good.

Both measures miss the point – BIG and long established companies are rarely great and are therefore rarely a suitable measure of business success.

What is a better measure of business success for the 21st century?

I think a better measure of business success is the rate at which companies start new spin-off companies to explore new markets and opportunities. Rather than judge the originating business or entity on its sole survival and relative size, why not measure it instead on the number and diversity of new businesses it has spawned.

By adopting this alternative mindset of ‘success’, companies would be encouraged and rewarded for taking risks and innovating with new ventures. Promising management teams and future stars could be pulled together into teams to test new market propositions and obtain valuable experience and feedback in the process. The stigma of failure is drastically reduced (“as hey, these are experimental missions”) and with each setback the successful business genes are weeded out and are passed onto the next iteration of the business.

This way business success breeds business success.

And so tomorrow’s great businesses would pay tribute to their business ancestors whilst gazing down proudly (at their rapidly expanding and divergent) business offspring.

What are your thoughts on this alternative interpretation of business success?

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