I was put in a difficult position by a client recently. I was helping them with their self assessment tax return, and was being pressured to include a couple of expenses that I did not consider to be legitimate business costs.

Within reason, and subject to some legal exceptions, a business is allowed to incur a wide range of expenses in the furtherance of its objectives. When you are self employed, or a sole trader, the onus of responsibility is the other way round – the basic assumption is that all expenditure is personal, unless you can demonstrate that it is business related.

In particular, I was being asked to include two items of significant value as business expenses, based on their presence on a credit card statement and the client’s insistence that they were business related. Bearing in mind that I had already had to consider whether towels and a set of weighing scales could be included, I felt the lack of any appropriate or independent evidence of the two items, such as a copy of the invoice and the fact the two large expenses were bought in the previous accounting period, I decided that, in my professional judgement, I would not allow them. This did not please my client.

Accounting is often considered an exact science. In my view, it is an art. Its purpose is to paint a true and fair picture of what has happened, in a way that makes sense to the person looking at the information.

It is the responsibility of whoever is putting the accounts together to ensure that there is appropriate evidence to support their view. Of course, what you might want to see may vary depending on whether you are the business or the tax man.

It’s not often that there is good news regarding funding for training and development, so this is worth shouting about!

If you have been in business for at least 12 months, have between 2 and 249 employees, and want your business to do better, then read on…

The Skills Funding Agency is offering grants to help leaders of eligible organisations to pay for training and development to help their businesses grow. The grant will pay for 50% of approved training (excluding VAT) up to £1,000. For example, if the training costs £1,000 plus VAT, you can claim back £500. If the solution costs £2,500 plus VAT, you can claim back £1,000.

Solutions need to be linked to one or more of the following:

1. Developing a highly effective personal leadership and management style,
2. Creating an effective business culture,
3. Planning and developing your business and its teams, or
4. Building high performance across your business.

These are quite broad headings, and I would be surprised if you can’t think of something you would like to improve that doesn’t fits into this criteria.

For more information, or a no-obligation chat, call me on 07913 895798 or email me on edhart@yourfbs.co.uk today!

I was talking to a client recently about their business. They were explaining to me what information they wanted to see on a regular basis that they believed would help them monitor their business. The indicators he felt were key were Turnover (sales income), Profit, and Cash in the bank.

Without wanting to start an argument there and then, I realised that I have a lot of work to do to get the business owner to understand what he really needs to know, why he needs to know these things, and what he needs to do about things when they are not good.

I have often talked about the Balance Sheet being more important than the Profit and loss, and I still stand by this statement. The Balance Sheet tells you what you own, who owes you money, and who you owe money to. These three facts give you a far better snapshot of your businesses health than any other measurement.

Take cash in the bank as an example. It doesn’t include cheque payments to suppliers that have not cleared. It doesn’t tell you how much you are owed by customers, or how much you owe to your suppliers.

Profit is a nice measurement if you are the taxman, but it doesn’t tell you how profitable you are. Making more profit than last year might sound good, but what will you do if you are only making 10% net profit, when last year you made 15%?

Running a business requires focus on the future. A review of the past is helpful, but only if you do things differently as a result of the lessons you have learnt. If you are measuring your performance by the wrong indicators, do you even know what those lessons are?

I met a prospective client a couple of days ago. He is starting a business based on his many years experience and contacts in his specialist field. We met on the basis that he needed an accountant, and could I help?

The word Accountant has become a much overused description of someone who provides financial assistance to a business. Calling yourself an Accountant implies expertise in a wide range of disciplines:

• Bookkeeper
• Payroll
• Management Accountant
• Finance Director
• Auditor
• Actuary
• Treasury (Investments)
• Business Tax (Corporation, CGT, VAT)
• Personal Tax (NI, PAYE)
• Pensions

I believe that every business needs all of the above, just not necessarily all at once, or all the time. When choosing someone to be your “Accountant”, are you paying for all the above services “just in case”, or being quite precise about what kind of support you need?

If you manage your business well, you will be able to select when and who provides you with “Bookkeeping” (needed on a regular basis) separately from your “Auditor” (only needed once a year); be able to pay for “Tax” or “Investment” advice only when you need it. You should ask for general support and guidance from a “Finance Director” only as and when you need to.

The various functions of Accountancy can (and often are) outsourced. Accountancy is a big pool with all sorts of fish in it. As a business owner you should dip into the pool only for what you need, when you need it.

Does my prospective client need an Accountant? No. His needs are far more subtle and demanding than a generalist. Are yours?

I had a conversation today with someone about pensions. Now I am not a personal financial advisor, and I gave no advice, but it did make me think about what I do do.

I have been taught that a good Finance Director knows everything, and that a really good one will get everyone else to do it for him (or her). I am not so sure any more. I think a good Finance Director knows how to find out everything he doesn’t know, and that a really good one will help others to do the best they can. After all, a really good Finance Director knows the financial situation, has a good idea of the aims of the business, and a pretty good idea of what every department is trying to achieve. I agree that generally it is up to others to make things happen.

More than any other department, Finance is judged by a very simple metric, is the business performing as well as it can. It’s existance is not about sales, or marketing, or brand awareness; and yet a good Finance Director is assessed on how well the business as a whole is doing.

So what has this to do with pensions? Well, it reminded me that I don’t know everything about pensions, but I do know the questions to ask to ensure the business is compliant. I also know what to ask to see what plans the business has in place to make the most of its staff and goals to see if it is as successful as it can be.

A good Finance Director is good with numbers; a really good one knows what questions to ask. How good your business is depends on how well you can answer the questions.

In life and business there are three basic tensions, Cost, Time, and Quality. Is it possible to achieve high quality, at low cost, in a short period of time? Probably not, so if you see an opportunity that promises this, it is probably hiding something.

• To reduce cost usually requires a reduction in quality, or a longer timescale.
• To reduce the timescale usually requires an increase in cost, or a reduction in quality.
• To improve quality usually requires an increase in cost, or a longer timescale.

So what is the best way to balance these?

I would suggest that you start with identifying what you can’t change. For example, do you have a fixed budget, a timescale that can’t be changed, or an expected level of quality? And start there. Once you have a starting point, your options become clearer.

You can generally agree on two of the three factors, and have to accept the third. You want it high quality and now? You may have to pay for it… You want it now and cheap? You may need to accept low quality…

If you are challenged on why the cost is so high, the timescale too long, or the quality not up to standard, think about what you can do to one of the other two factors.

A colleague told me yesterday that a mutual client has called him by mistake, when they were trying to get hold of me. As the client launched into a detailed explanation of their challenges and voicing their ideas, he hadn’t been able to explain that they had dialled a wrong number until after a few minutes.

The thought crossed my colleague’s mind that the problem the client was describing might be something he could help them with. But on reflection he knew he had to stop the conversation and direct the call to the right person.

My colleague and I chatted about how important it was that the right person helps at the right time. The “presenting problem” is rarely the real issue. As a business consultant/coach, my role is to find the heart of the real issue, and to help suggest and implement some solutions. Sometimes it’s gut instinct, sometimes it’s noticing particular words, sometimes it’s just about asking the right questions.

Consultants are sometimes accused of borrowing your watch and then charging you to tell you the time. But if your problem is that you don’t know how to tell the time, then asking a consultant for help seems like a good idea to me.

Life is difficult, and there are enough challenges for each of us without having to feel like we must do everything on our own. Asking for help from the right person at the right time can sometimes be the difference between success and failure.

Who is harder to please, trustees or shareholders?

There is a perception that professionals in the public or third sector are not up to the demand of the private sector. The cut and thrust of commercial life, with private equity funding, hard nosed corporate deals, and focus on the bottom line is thought of as a tougher environment than the soft, touchy feely world of charities and public services.

I beg to differ.

Having worked in both sectors, I can happily state the obvious, that they are different. Beyond that, the range of stakeholders in a third sector organisation requires more than attention to profit and shareholder return. Financial sustainability is key to every organisation, but so are the people.

The single minded pursuit of profit in a commercial business is sweetened by the financial rewards that individuals are offered. The third sector has long realised that such incentives can be offset by greater flexibility, offering a quality of life, and recognition of the difference that each person makes.

Those who lead commercial organisations usually do so with a combination of the carrot and the stick. As an employee, this simplifies the relationship. In an organisation that is led by passion, profit is not enough to be deemed a success.

A shareholder’s primary duty of care is their financial return, a board of trustees asks for far more than that. Trustees are quite rightly harder to please. The commercial world could learn a lot from them.

This seems like a simple question. However, particularly at this time of year as they submit their tax return, many people find out that what they thought was a business expenses, isn’t.

The answer to the question is not defined by you, but by the tax office.

Take your telephone bill as an example. The tax office is happy to accept a telephone bill, even a mobile phone bill, as a business expense if you are a limited company, but not if you are self employed. If you are self employed and have a mobile phone, the tax man will assume that the contract is mainly for personal use. To prove your business use you need an itemised phone bill and details of which calls were for business, and which were personal.

Another area that often causes confusion is food and drinks (entertaining). Meals and drinks bought by a limited company can usually be called a business expense, but only very rarely if you are self employed.

If you are unsure about what is or isn’t a business expense, ask a professional, and then make sure that you understand what they tell you. I heard a story recently about someone who thought they knew what was allowed, only to find that their accountant had disallowed some items on their tax return (and not told them).

The logic behind the tax office’s decision on what is (and isn’t) a business expense may be archaic or confusing, but when the tax man knocks on your door and asks to see your accounts, the argument becomes irrelevant, as all that matters is the law.

If you would like to know more, or have questions, please ask.

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?