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?

I was late arriving for a meeting a couple of weeks ago. I needed to park in a metered space, and pay with coins. I hadn’t got enough change to cover the time I needed to pay for. Trying to keep calm, I started to look around for somewhere to get change for a £10 note. The concierge of a local hotel, realising my predicament gave me a £1 coin, enough to enable me to park and make my meeting with seconds to spare.

Since then, I have given away £1 coins three times to complete strangers in a similar situation to myself. I have also found myself thinking more about giving more away than I might usually do while talking to potential clients.

Something in the actions of the concierge has encouraged me to become more generous. At the same time, I have seen an increase in the amount of goodwill I have received. By being more open and giving, I have received more. More information, more support, and, ultimately more business.

In today’s cut and thrust world, it is easy to become focussed on ourselves and our own interests. It is harder to collaborate than act unilaterally, harder to give than receive, and harder to be open than keep your own counsel.

The evidence I have seen in the last couple of weeks suggests that the effort is well worth while. At worst, you might be out of pocket by £1, is that so bad considering the potential benefit?

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.

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.

I was talking with a client about the amount of business they were generating from their website. The key interface between the business and the customer is the contact form, that tells the business about what the customer needs, as well as a contact name, number and email.

A brief look at Google Analytics revealed some interesting statistics:

• In the last month, their website had received just under 6,000 hits, and
• In the same period, only 54 click through’s to the contact form had been generated by the website, meaning that
• Less than 1% of visits had resulted in a request for a contact.

This was pretty depressing, but it explained why the business felt that it wasn’t getting much benefit from the website.

By looking at each page, it became apparent that there was no obvious “call to action”. Even if the visitor was keen to make contact, it wasn’t clear how they should.

I’m no web-master, but I do understand the importance of making sure the link between you, your product, your “shop”, and your customer, is seamless.

When was the last time you asked someone to give you honest feedback about how easy you are to locate, find out about, and to buy from?

Things go wrong in business all the time. Key to your success in business is the ability to recognise when something has gone (or is about to go) wrong, and then to do something about it.

Thankfully most things that go wrong can be corrected.

But are there things that can go wrong that you can’t correct?

What is it that tips a business over the edge and into administration, or bankruptcy?

Top of the list has to be cashflow. No cash means no business.

Also up there is an inadequate capacity to deliver.

Perhaps the most difficult to deal with is a lack of confidence. It’s intangible. It’s not always something you know about, or can do something about.

Confidence is one thing you can create without spending a lot of money. Being positive can have a huge positive difference on you, your business, and your customers.

Talking over the MP expenses story with some friends, there seem to be two issues:
The rules for reclaiming expenses, and
The administration of the rules.

I believe that the rules are probably about right, possibly a bit generous, but basically right. The governing document makes it very clear what should, and should not, be claimed, and why.

However, I have major issues with the way in the rules were administered. Greed and maladministration have allowed MP’s to claim for items that do not fall within the rules they themselves set. Quite clearly, not only did some MP’s break their own rules, but the laws of the land as well.

This is not a modern problem, in AD130 Juvenal wrote, “Sed quis custodiet ipsos Custodes?” (But who will guard the guards themselves?).

There is no perfect system. But there is a compelling case for better independent scrutiny.

At a breakfast meeting this morning, the excellent speaker said that there were three things that were good at travelling globally:
Disease,
Information,
Money.

She was talking about the charity she worked for, but made a compelling case for the involvement of all businesses and individuals to get involved.

The world we live in is no longer restricted to those we live next to. Our next door neighbours now live across the globe.

Our success (individual and corporate) depends on the well being of those we live with. As we hope to be looked after when things don’t work out, it is our responsibility to look after those less fortunate than ourselves.

How do we know who to help?

The message is: find out who you can best help, and get involved…