Recession. What is it? What does it mean? And most importantly, what does it mean to you?
The sales are in full swing, parties are loud and late, cars are travelling far and wide. Some days it feels like there are two worlds, the one we live in and the one we read about.
Losing a job is not fun – I know from personal experience – but take this out of the equation, and what else is happening? Food prices are down, fuel is just 86p a litre, variable mortgage rates are at an all time low. The spectre of recession might be based on little more than a perceived worsening of our world.
Perhaps the biggest thing we have to fear, is fear itself.
Another subject that is covered by a thousand books, prompted by a business running an on-line shop selling stylish products for the home and garden.
Assume a marketing spend of £1,000, how much of this should they spend on getting past customers to come back, and how much on finding new customers?
My view was a split of about 20:80, with the majority of spend on finding new customers. The type of products on sale are not daily purchases (think Christmas, birthdays and special occasions), so customers may come back, but maybe only twice or three times a year tops. To me, the key to driving revenue up is to find new customers.
How do you allocate your marketing and advertising spend?
The root of the problem is that most small businesses are selling to companies larger than themselves, who have the advantage of a full-time finance director. These seasoned professionals know how to manage cash-flow, and therefore how to improve their companies’ bottom line instantly by quietly moving payments from thirty to ninety days.
You would do well to support your sales operation with a finance specialist. If you do not have a full-time finance person, then pay a little extra and get someone appropriate to help supervise the sales process.
They will put in some sensible precautions, such as credit controls on small and medium-sized businesses who might want to place orders. In my experience, it is rare for a company to turn down business from someone purely on the basis of a poor credit rating, but it does improve the negotiating power of the salesperson to ask for a substantial up-front deposit.
If the potential order is with a large organisation who have an excellent credit rating and who represents a substantial share of your revenue, there is still the problem of their moving the goal-posts on payment terms. The solution is to have an open channel of communication between your finance specialist and their finance director.
The reality is that few large organisations want to be seen to be bankrupting small companies by applying unreasonable payment terms. Problems usually arise because the salesperson does not have the knowledge and patience, or even vocabulary to discuss these issues with finance people at an early stage in the process.
Left to their own devices, finance professionals will usually come to a sensible conclusion which represents a win for both sides. The supplier might be happy with longer payment terms in exchange for a larger order, or you might offer a price discount in exchange for an up-front payment.
Late payment is a natural consequence of difficult economic conditions and has no easy solution other than to employ the services of a professional. This could be either a finance expert or a company who knows how the system works. It may be expensive in the short term, but represents an excellent return on investment over time, the same argument you should use to promote your own products and services.
If you want to talk this through in more detail, call me on 07913 895798.
The dust seems to have settled on media speculation about VAT – just how many sexy headlines were they ever going to come up with anyway?
So what should you be doing to make the most of the change?
Number one, now is the time to make large purchases, such as computers and other goods and services that have a high cost. The reduction on VAT should mean that they will cost you less. Don’t forget to haggle on price as well.
Number two, check your purchase invoices from suppliers. Make sure you are being charged at the lower rate of 15%.
Number three, check the sales invoices you are issuing. If you can justify making a supply at the old rate of 17.5%, then use it.
Number four, take proper advice if you are unsure what to do. Behind HMRC’s PR is an army of folk whose job it is to collect tax.
Met an interesting person yesterday – which sparked a debate about types of accountants. Not whether they are interesting or boring (!), but whether they are financial or management accountants.
Financial Accountants produce the raw data – they are the unsung heroes and heroines who make sure your numbers are produced on a timely and accurate basis, that debts are called in, and creditors appeased.
Management Accountants are a different breed. They look at the data and ask the “difficult questions”. Such as “Is this a good number?”, “Have we achieved what we thought we would, and if not, why not?”, and perhaps the most important question, “What is the implication of this data to our financial future?”.
Most businesses have Financial Accountants (for example the bookkeeper). I believe businesses need both kinds of accountant, and that it is very hard to find someone who can be both.
Who is asking the difficult questions in your organisation?