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?

Ok, so fuel goes down by a penny at 6pm. It’s still expensive. On the plus side, as an employee I will be able to claim 45p per mile from my employer fro the first 10,000 miles I drive. If I own the business, I might not feel so great about parting with up to £500 per employee…

Then again, as a business, I have some good news, the VAT threshold is now at £73k, and corporation tax is reducing (unless you are already an SME, and already only paying 20%, in which case there is no change).

Tax avoidance measures are being ramped up – the government is looking to pull in an extra £1billion more per year in “lost” revenue. If you are avoiding paying tax, make sure its legitimate!

My personal tax allowance is going up by £630 per year, but not until April 2012.

The bigger picture is a mixed bag. Growth is still growth, but only just. To help kick start regions that are really struggling, Enterprise Zones have been established. At first glance they may have some attractive strengths: potentially 100% rate relief if you move into the region, and the promise of super-fast broadband.

As expected, the squeeze on public spending continues, with council taxes frozen, or reduced.

To my mind, and as a small business myself, all the above suggests one thing, opportunity. As a chair of governors of a local school, I have already received the first of what I expect to be many approaches from a private company, this time selling expertise that was previously provided free of charge by the Local Authority.

The world hasn’t stopped, its changing direction. Which way are you pointing?

Ahead of the budget, here is a prediction: in the next 6 months, either inflation will go up, or interest rates will go up, or they both will go up.

The challenge therefore is not to second guess what is going to happen, but what you are going to do about the inevitable increases.

At the start of the recession, interest rates tumbled to their lowest level in living memory. To remind yourself what it was like, work out what the additional cost of an increase of 1% on your borrowings would be. Now multiply that by 4 or 5. That is how much better off you are at the moment, and how much you will need to find again when interest rates go up.

In the mean time, inflation is creeping up. No change there. However, pay awards are being held flat or low. Certainly lower than inflation.

My real prediction is that life could be a lot worse.

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.

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?

Most businesses operate with very little money in the bank. Some just operate perpetually on an overdraft, or with just enough to keep the bank manager happy.

To some, this is “situation normal”, and many organisations exist in this financially precarious state for months and even years. Having very little money is not a crime, nor is it always a sign of instability. Money in the bank is only working for the bank, think about what you could be doing with your cash to further your own business goals.

But when it happens to you for the first time, or if you walk into a role, or organisation, in a position of responsibility for the first time it can seem a frightening situation. Questions like “Will we be able to pay our staff”, “How can I please the screaming creditors”, or “The bank manager might pull the plug”, can keep even the strongest of us awake at night.

The first thing to do is not panic. Knee jerk reactions might further de-stabilise the organisation and, at worst, tip you over the edge.
Work out who owes you money. Chase it, hard.
Work out who you owe money to. I suggest you are open and honest with them. I would rather be thought of as a “slow payer”, than a “no payer”.
Take control – write down your realistic financial goals. Then write down what you need to do to achieve them. Then start doing those things.

Perhaps the best advice is to talk with someone who has been in that situation themselves (and survived!). It might not immediately solve your problem, but you might gain some strength, insight, and develop some tactics to help you pull through.

Sitting as a board member recently, I was struck by a report I was reading. It was detailed and accurate, telling me (at length) what had been going on, what the various activities undertaken had been, and who had been involved. As I read it, a single question emerged in my mind, “So what?”.

It wasn’t a criticism of what had happened, clearly it had all been a great success, but it told me nothing about what it all meant about the future. As a board member, I am expected to discuss policy and strategy. I often describe the ideal place for a board to be as 1 mile above the organisation, and 5 miles out in front. This enables a board to set an appropriate strategic direction for the organisation to travel.

The report I read was telling me that where the organisation had been was spot on. But it gave me little indication of what that meant about the future. Had we been too pessimistic about our goals perhaps? Was there anything to learn from what had happened that should suggest we move in a different direction, or to new fields of work? I felt like we were being asked to drive a car using the rear view mirror to help us navigate.

When composing a report, I apply the 20:80 rule. The first 20% of a report should be about the past, telling the reader about what happened, the good, the bad, and the ugly facts. The remaining 80% should be future focussed, answering the question “So what?”. This is not as easy as it sounds, but makes for a far more informative and useful document on which to base strategic decisions.

Many years ago I read a story, in which a traveller asks for help finding Dave’s Bar. The local man replies after some thought, “Well, I wouldn’t start from here”.

I have had a number of meetings recently in which the subject of how best to report on financial and business performance has been debated. Traditionally, detailed reports are presented giving chapter and verse on past activity, explaining why the results are what they were, and how the variance between budget and actual is accounted for.

All this is fine, but it leaves me asking the same question, “So what?” You know (I hope) where you want to go, so given where you are now (and it may not be where you wanted or expected to be), how are you going to get to Dave’s Bar?

I suggest that reports should spend no more than 20% on historical analysis, noting key events and any exceptional activities, and the remaining 80% on what you will be doing differently as a result of what has been learned, and what impact these changes will have on your forecast.

By reporting more on the future than the past, and incorporating lessons learnt as you go, you dramatically reduce the chances of being caught out.

This should spell the end of the traditional annual budget, and the start of regular reforecasting. Yes, it’s interesting to know how we got here, but of paramount importance is to know how we are going get from where we are now, to where we want to go, even if it’s only to Dave’s Bar.