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.

As anticipated, my last blog about a simple web site related topic like the conversion rate between visitors to your web site and the number of potential customers engaging with you (for example by completing a contact form) created quite a bit of correspondence.

The vast majority of comments emphasised complex and (to be fair) quite interesting ideas about how to get the best out of your website. But I felt they missed the point. Most businesses are run by hard working individuals who have not got time to understand and implement subtle marketing ploys.

Which brings me to the question of how you eat an elephant. The answer is, of course, a mouthful at a time. To try and take too big a bite out of a problem leaves you with bad indigestion.

You need a website for two reasons, to increase your brand awareness, and to generate sales, and not necessarily both at the same time. Whatever tactics you use to achieve your goal need to be SMART (Google this if you can’t remember the acronym!).

I believe that life is complicated enough without making it harder than it needs to be.

The next time you want to make your business better, talk to someone who can talk to you about it in simple “plain English”.

Identify the problem, break it into manageable chunks, and deal with it! Life is hard enough, without it being taxing.

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.

Nothing succeeds like a budgie with no teeth.

I have had a few meetings recently with people looking to start a business. Some of the businesses were start-ups, some were buy-outs.

As a freelance FD, I was asked if the idea stood a chance of succeeding financially.

What we very quickly got down to was not CAN they make a success of the idea, but do they WANT to make a success of the idea.

Without the will to succeed, it’s very unlikely you will succeed.

With a determination to succeed, even average ideas stand a good chance of making money.

I gave a presentation to a business-networking group this week on the subject of Social Media and Business.

Realising the audience was at best sceptical (with a couple of exceptions!), and at worst cynical, I used the following images.

• Plain website = shop window, hopefully directing you to the door in.
• Blogging on your website = shop front glass now removed, allowing you to talk to potential customers, and for them to talk back (for example by leaving comments).
• Social Media (such as Twitter, Facebook, and LinkedIn) = you have left your shop and are walking about sharing your ideas, and encouraging others to talk about them as well (not always with you present).

It is a bit blunt, but seemed to get the key messages over:

1. Social Media is not something that only happens online – it’s a mesh of physical meetings and online activities.
2. Ideas that are spread through groups of people are far more powerful than ideas delivered to individuals.
3. Real engagement is when people do things for you that you didn’t ask them to.
4. Learn to lose some control – in return for greater reach.

With thanks to Steve Bridger (http://www.stevebridger.com/) for his insights…

I have been wondering what I could “give away” to give you an idea of the kind of support I give to businesses.

The first thing that occurred to me was a simple excel spreadsheet that shows how the P&L links to the Balance Sheet, which links to the Cashflow, which links to the P&L. You get the idea – its a neat pro-forma.

Then there is my list of the various kinds of accountants that businesses use – there are more than you might immediately think. This is helpful because you need someone to look after all aspects of your business’s accounts and it’s easy to overlook something…

Then I have a list of accounting software packages I know, either through using them, or reviewing them, or simply on recommendation – handy when discussing potential changes.

I have a great contacts database, but that’s worth a little too much to just give away…

I keep wondering about a FAQ page for my website. Is there an accounts question you always wanted to know the answer to?

So at the moment I haven’t got anything to give away. Should I have something? Is what I do too intangible? Does a freebie make a website more attractive? What would you like?

Financial Business Support
Many years ago I interviewed a bunch of characters for the post of Nightclub Manager. Failing to make a decision, the panel asked itself the following question, “If the interviewee was a nightclub, would I go to it?”. Suddenly the choice became easy.

It is very easy to forget the impact that the person has on the identity of the business. Every employee, from security on the front desk to the chair of the board, adds a key ingredient to your brand. In times of apparent doom and gloom, what kind of impression do you give the outside world?

A visitor to your business, whether by phone or in person, may well learn more about your company from the first point of contact in the first few minutes than in the whole of the meeting you have carefully planned.

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?

With thanks to David Pugh of Daymar Ltd

Well at 3.30 yesterday I settled down to watch the Report. The first half hour told me nothing except how well the government had done and that today’s problems were solely due to USA sub-prime borrowing. The next half hour mainly told me what they had leaked out to the weekend press anyway, so why bother ? And why bother indeed was the feeling after Alastair had sat down.

So for those of you who might have felt too excited to watch it – a quick update for you.

Gordon was there just behind Alastair – presumably just a coincidence that Alastair behaved like a glove puppet of Gordon. And Gordon did his nodding act again, and this time we got a few smirks as well. Good to see how seriously he takes our economic problems.

Apparently one of the main reasons for the global economic crisis is the high level of debt everywhere. So the government solves this by ….yes…increasing our country’s debt. But (in the words of the M&S advert) this is not any normal increase, but an increase to the highest level in history.  Hmmm – what was it that our friend Gordon used to say about “prudence” ?

Still don’t worry – Alastair said his budget should be back in balance by 2015/2016 – what a shame we can’t all wait for that date for our personal and company budgets.

Alastair has given us one short term (temporary) benefit before we pay (permanently) through our nose for this debt. Yes – VAT down 2½% from next Monday up until 2010. This is supposed to give a boost to spending. But……….. there is no VAT on food, children’s’ clothing, books, papers, postage, train and bus fares or council tax. There will be no reduction in petrol or diesel, or in heating bills. So no reduction in prices of the things you pay for every day. But there will be a price cut in televisions and all those things you buy once in  a few years, and then only when you have the disposable income to do so. Hmmm – so where is the boost to the economy?

Even so, with stores slashing prices by 20 to 30% I am not sure how we will actually notice this. In fact, how many retailers will keep the VAT cut as a contribution to their margins, or use it to offset the costs of changing tills, brochures, price lists and overtime for everybody to do this over the next weekend, and not pass it on? However, I am sure we will see the increase clearly when it goes back to 17 ½% on new year’s day in 2010 – so a happy new year to look forward to then. Still, if it does get consumer spending up, it will be on consumer goods in shops – so good news for employment in China as everything is made there now, but not much benefit for the UK. 

This VAT cut does nothing for our heating bills, as these have 5% VAT and this is not affected.

But prices for tobacco, alcohol and fuel will not go down – because he is increasing duty to offset the VAT reduction. In fact those of us claiming VAT back on petrol and diesel lose out because there is less VAT to reclaim! I wonder if Alastair has thought of how goods get to the shops ? That lorry derv will now cost more so food prices will go up even more and there is no offsetting as food generally is not subject to VAT.

And when VAT goes back up at the end of 2009 – will they reduce the fuel duty and the alcohol duty to compensate for the increase in VAT – am I being cynical if I think not? So yet another rise in fuel and drink prices again in 2010 then – by the extra fuel duty today plus the extra VAT which in turn is charged on top of the duty.  And that increase in fuel prices will feed through to higher prices of everything else. Hmmm – and this budget is designed to boost the economy?

And tax increases to come in April 2011 – is it just coincidence that this date is after the next general election ?

Increased income tax in April 2011 for those earning over £145,000 – up to 45%, and detrimental adjustments to the personal allowances for those over £100,000. Also not until April 2011 is that other income tax increase (oh sorry I mean national insurance which of course is not income tax is it?) when it will go up for both employers and employees – an extra ½% on all rates.  But it’s more than that – between you and your company you will be paying 1% more. And this is on top of the national insurance increases which happened just this last April – he forgot to remind us of those.

So no higher tax or national insurance until 2011 – is this because after then Gordon and Alastair and company expect that they will not be earning their high salaries by then ? (can’t think why not…………………). So it’s a good job that London MPs last August quietly awarded themselves a £6,065 rise in their London allowances to take effect next April to help them through this.

But some good news – the personal allowance increase this year (after the 10p tax fiasco) will become permanent. This is the amount you can earn before income tax is taken off. And that 2p income tax he proudly announced early this year off earned income – well it  has still not been taken off savings income, although again he did not mention this.

For those on state pension – well, not bad as there will be an increase in the basic amount from January (although this is not a budget point as it would happen anyway) plus a £60 boost payable in January.

So how is it for those of us with small businesses and companies ?

Well some (temporary) good news – the increased corporation tax rate for small companies next year from 21% to 22% has been “postponed” – he did not say until when but probably only 12 months deferment. It has still been increased from the 19% we enjoyed a couple of years ago.

But of course the increased employer national insurance will hit – not just on salaries but on benefits in kind too. He also forgot to remind us that in 2012 we will also have to bear a compulsory 3% employer costs on pensions.  So a good help to employment in the economy by then……….

He also gave some help in spreading tax bills if the company needs it – but it means phoning a specific helpline and negotiating with HMRC, and interest will still be payable on the delay. Still if it all does not help – then company losses (up to £50k) can be offset by previous years’ profits up to 3 years, increased from the previous one year limit.

They have confirmed there will be no action in 2009 on “income splitting” following the Arctic systems case, but they are keeping it under review. So we are OK for sharing dividend income with our spouses next year but we don’t know for how much longer. With the increase in national insurance we will help you to avoid this by paying through dividends which we can continue to do under current legislation.

So in summary – not really any good news in the short term despite the government spin  - no reduction in food prices, heating bills, fuel prices, council tax or anything else we classify as essentials – but bad news in the long term as we will all be paying for that increased government borrowing in the future.

But if you get really stuck – you can now pay tax to HMRC by credit card (for a fee which they will charge you as well) – and this from a government complaining we have put too much on credit. Am I being cynical again?

As always we need to see the details in the press releases which may refine some of the points above, but we will keep you up to date with developments. Please feel free to raise any queries with us, or to refer us to any colleagues who we can help.

Oh and don’t be fooled by the stock market increase yesterday – that was due the US bailout of Citigroup and not Alastair’s speech. So we have to be grateful to Bush after all.

Great story I picked up:
http://news.ninemsn.com.au/article.aspx?id=665847

Is it the company being picky, or do they have a point?