As you will have seen on the news, the rate of VAT in the UK is to change from 17.5% to 20%.

VAT is an amount added by the supplier of most goods and services to what they sell, and which they must by law pay to the government. As individuals are usually not VAT registered, what we buy includes VAT, and is not reclaimable as it is to most businesses.

Offers by shops to cover the rise in VAT mean that they keep the sale price the same, but reduce the amount they get to keep after deducting the VAT they owe to the government. For example, if you buy a sofa before the increase for £500.00, the VAT due by the seller is £74.47; after the increase, the seller has to pay £83.33 to the government, meaning they are £8.87 worse off.

To most of us, the increase will mean very little, as the impact of adding 2.5% to the cost of a purchase is pretty small. For example, assuming no other changes to its price, an item costing £100.00 in the shop will be re-priced at £102.13. To incur, say, an extra £20.00 per month as a direct result of the extra VAT would mean you were spending £940 per month.

As an individual, it’s doubtful you will feel a financial impact from this change.

So although an increase from 17.5% to 20% sounds a lot, the only real winner will be the government. Some things never change.

If you use your own car for business purposes, you should be claiming expenses to offset the costs that you are incurring. As well as the fuel you use, you are allowed to claim for running costs such as repairs and maintenance, MOT, tax and insurance.

There are a couple of ways you can calculate how much you can claim. The simplest is to work out how many miles you drive, and use the official rates provided.

It doesn’t matter of you are self employed, or working for a company, as long as the miles you travel are for the business, and are not personal. The exception to this is your regular commute. You cannot claim for the miles driven to and from work, if you work at the same place most days. However, trips to the post office to buy stamps, to visit clients or suppliers, to visit business partners, or attend meetings are all allowable.

You may not know this, but you can also claim reimbursement if you use a bicycle to get around for business. A few years ago, the government introduced a mileage rate if you use your bicycle for business. A great way to stay fit, help the environment, and claim a tax deductible expense!

If you are VAT registered, you will need to collect VAT receipts for your fuel (not necessarily for the actual fuel you use), ensuring that the receipts are dated within your claim period.

I have created a very simple spreadsheet to help you calculate how much you can reclaim as expenses if you use your own car (or bicycle!). If you would like a free copy, please call or email me, and ask me to send it to you.

I was helping a client today to prepare a budget. Due to the kind of work they do, we spent a bit of time talking about how much something costs, and how much something is worth. Let’s call the first it’s cost, the second it’s value.

When working out how much to charge for something, do you start with its cost, or its value?

From a customer’s perspective, they are interested in value for money, so your question should be whether there is enough of a difference between what they pay (Value) and what you spent on it (Cost). Assuming you sell for more than you paid, you make a profit. The eternal question is whether it is enough profit. And how much is enough?

It is a curiously English attitude that says we should “only” make a certain profit margin. I speak with many business owners who feel that to make “too much profit” is wrong. Some feel uncomfortable with making “too much profit”. But how much is too much?

I would encourage you to charge as much as you can; after all, if the customer is buying then they must feel they are getting value for money. Competition is the best gauge to what the market is prepared to pay.

But what if there is no competition – is there a limit to your profit margin?

Businesses need banks, and banks need businesses. But as a business owner, how do you decide which bank to trust your money with?

I have helped a number of organisations choose a bank – some for the first time, some because they wanted a change, and some because they needed to change!

There are many considerations to weigh up, including: cost, secondary services, knowledge of your business sector, location of branches, access to help. To me, the most important factor when deciding who to bank with is the Relationship Manager.

It is perhaps a little unfair to say that all banks are alike, however, there is generally very little between them in cost, in location, and in the general service they offer. To my mind therefore, the biggest difference between banks is in their staff.

When I needed to set up a bank account for my business, I walked down the high street in my home town, and walked into every bank. I asked the same question in each branch, “Please can I talk to someone about setting up a business bank account”. Within 30 seconds of walking in, I felt I knew how much the person I was talking to cared about me and my business.

I would not want anyone to think that choosing a bank is a decision to take lightly – particularly in today’s economic climate. Never forget who is the customer. As ever, more than numbers and statistics, it’s the people we do business with that matter, and I suggest that this includes your bank’s Relationship Manager.

The balance sheet is more important to your business than your profit and loss statement.

The balance sheet tells you what you own, how much you are owed, and how much you owe to other people. Broadly speaking, assets are those things you own, or are owed, and liabilities are those things that you owe to others.

Liabilities include things like overdrafts, loans, and debts to other people (creditors). But are all liabilities bad?

Borrowing money means you have cash to do something with. If it costs you 5% to borrow £10k, and you are able to generate a profit of 7.5% through the activities you can make happen, then you are making a profit of 2.5%. Without borrowing the money you would have made no profit at all. So a loan can be a good thing, as long as you are making good use of the opportunity.

Investments in your business are liabilities. They represent the amount you have been loaned and, as above, you need to be sure you are making the most of the cash. Even “non-profit” organisations need to demonstrate that they are fulfilling their “non-profit” objectives. Is the cash sitting in the bank, or being used properly?

Liabilities also include Trade Creditors – money owed to your suppliers. It is important that you pay them within agreed terms, but don’t pay early if you don’t need to. This enables you to do something with the money.

All business owners and managers should know how much they owe to other people. Not just so they know how much they owe, but so they know how much cash they are sitting on that belongs to others and to be thinking about what they are doing with it.

I was asked recently if there is an easy way to calculate how much holiday pay a casual worker receives. For once, I was able reply yes; there is an easy way to answer a payroll question!

Since April 2009, under the Working Time Regulations 1998 (as amended), all employees have the right to 28 days, or 5.6 weeks, paid leave (including statutory bank holidays) each year.

5.6 weeks holiday, divided by 46.4 weeks (52 weeks less 5.6 weeks holiday) equals 12.07%.

A member of staff who is full time, or part time with fixed hours, usually has their holiday pay included in their salary. Unless it is otherwise contracted, casual staff, or those with irregular hours, have their holiday pay added on to their pay. Sub contractors (those not paid through your payroll) are not normally entitled to holiday pay.

So the simplest way to calculate how much a member of staff who works irregular hours is entitled to receive in holiday pay is to multiply their actual earnings by 12.07%.

For example, if a casual worker has worked 100 hours, they will have accrued 12.07 hours holiday. If their hourly rate is £10, they are entitled to £120.70 holiday pay.

It is vital that the holiday pay is separately identified on their pay slip, as it is illegal to include it with their basic wages.

So there it is, the easy way to calculate holiday pay for your staff who work irregular hours!

Time is money. We all know that. But do you know how much your time is worth? I recently helped a self-employed client work out this cost, and thought I’d share the process.

The starting point is to work out how much it costs to “keep you alive” each month. This should include your rent or mortgage, your utility costs, average food bill, travel costs, a contribution to a small annual holiday, and a little contingency “just in case”. Let’s say, for example, that this amounts to £1,200.

You now multiply this cost by 12 to get your annual cost: £14,400.

Assuming an average working year of 220 days, you need to earn just over £65 every day to stand still. However, that’s after paying tax. So your gross earnings would need to be in the region of £80 per day.

So assuming an 8 hour day, it costs you £10 an hour to sit still.

It might not sound much, but every hour you don’t earn means you have to earn more in the other hours. Let’s say you only earn in 60% of the time. You need to charge about £135 a day, or £17 per hour.

So when you sit down to read or do something that you are not being paid for, ask yourself, is it worth £17 per hour?

A client of mine was thinking about starting a business, and asked me how big an overdraft she needed to ask her bank for. After talking through her plans, we agreed that the overdraft was a safety net, not a requirement and that, ideally, she ought not to make arrangements to borrow money she didn’t need.

I have been very lucky to work with a number of entrepreneurs and business owners. If I had to identify a common characteristic, it is a simple determination to succeed. Not necessarily financially, but in getting their product, service, or message, out there. It never seems to matter how much they have in the bank, their passion to succeed leads them to find innovative and often unusual ways to achieve their goals.

Passion really is a form of currency. To illustrate this, I can remember presenting to a bank for a significant loan to support a business. On paper, the business was in trouble. It was losing money, it was losing good staff, and it had issues with its governance. What it did have was a charismatic leader who conveyed a tangible sense of passion to succeed. Failure simply wasn’t an option. The bank was convinced, and the loan was granted.

If passion is a form of currency, then starting with little cash is no bar to success. The ideal combination is a sound business plan, presented with passion.

Listening to the radio today, I was struck by the speaker’s complaint about how “the credit crunch” was still causing problems to his business.

It got me thinking. What was really at the heart of his problem?

The Credit Crunch refers to a bank’s unwillingness to lend money. Was he looking for a loan? If so, what for? To invest in greater capacity? To launch a new line of products or services? To help with poor cashflow?

If it was the last reason, I can understand the bank’s reluctance to lend, and crunch his credit.

Banks have not helped themselves in recent months, but their core purpose remains the same: to lend money to businesses. In return they expect a profit on their investment.

If you are having difficulties convincing your bank to lend money to you, maybe it’s because of something you need to do, or say.

If you need help talking to your bank, let me know. I might be able to help.

I presented a seminar last night to a group of business managers in Derby on the above subject. So that we all got to the pub at a reasonable time, I covered a few key points:

• Ask yourself every day: “Am I doing the things today that will ensure my business is here in 12 months time? “
• If you are not doing things that are about your business being here in 12 months time, why are you doing it?
• Understand the difference between cash and profit – you can make a loss and make money, and you can make a profit and lose money.
• Learn what the Balance Sheet is.
• Write down what your business is for in less than 20 words. Print it out, laminate it, and stick it above your desk.
• A bit of luck can go a long way.

These all seemed a bit obvious when I was preparing the talk, but after the presentation the audience reminded me how easy it is to forget the basics.