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Archive for August, 2015

Saving for children

If a parent saves money in the child’s name in a standard savings account then if the interest is over £100 it will be taxed in the parent’s name.

So, you can only save a few thousand for a child before the interest is taxed. However, grandparents can save for grandchildren without the same problem. And, a child has a tax free allowance of £10,600. So, a child could have a couple of hundred thousands of pounds of savings from grandparents and not pay tax.

This is why it can be worth families discussing arrangements and possibly gifts skipping generations.

But, parents can save for their children in a tax free environment called Trust Funds (CTFs) and Junior Savings Accounts (JSAs).

From April 2015 parents can transfer savings held in a Child Trust Fund (CTF) to a Junior Savings Account (JSA), which can pay better rates and may have lower charges.

Money held in a CTF or JSA is locked away until the child reaches 18.  But, the income is tax free. A JSA operates in the same way as an Individual Savings Account (ISA). The maximum investment is £4,800 so there is scope to make tax free investments for children.


Avoiding 60% tax

You effectively pay tax at 60% on income over £100,000 because you pay tax at 40%, plus you start to lose your personal allowance, which also increases your tax.

Your personal allowance is £10,600 for the current tax year. The rule is that you lose £1 of allowance for every £2 of income over £100,000. So, if your income is £101,000 then the tax of the £1,000 over £100,000 is 40% of £1000 (£400) plus £200 (40% of £500 being the reduction in the personal allowance). This is a tax rate of £600 on £1,000 = 60%.

This tax rate applies between £100,000 and £121,200 because at this level there is no personal allowance left. So, it can be useful to look to reduce your income below £100,000.

Here are three ways to reduce your income below £100,000 and save tax at 60%.

Contributing to a pension scheme will reduce your taxable income. So, for example, if you had income of £121,200 and contributed £21,200 you would save tax of £12,720. This would make the cost of the pension contribution £8,480.

Keep in mind that you can get 25% out tax free which is £5,300 which would leave £15,900 in your pension at a cost of £3,180.

Transfer income
It is possible to transfer assets that generate income to your spouse or civil partner. This can reduce your personal income for tax.

Your spouse or partner may have to pay tax at 40% but you won’t lose your personal allowance, so you save tax of 20% on the income.

If you have a company you can delay or bring forward income by paying dividends at different times. It is possible to let profit roll-up in a limited company and pay out dividends over many years when you wind down or retire. In effect, you use your company as a pension fund.

Another option is to let profit roll up in a limited company and pay out profits as a capital distribution when you close the company.

Take time and celebrate small successes

In the construction industry, it’s traditional to have a “topping-out” ceremony to celebrate the progress when the last beam is in placed on a building, In the same way, as a business owner you can celebrate progress on building your business.

But, it pays to this regularly, every week or two because research reveals that celebrating small wins with people encourages them to become more productive. Rather than celebrate the last beam on the roof celebrate each stage, even the number of bricks laid week-by-week.

This makes common sense but 50% of business owners don’t do it. This means that you can obtain an advantage over your competition by implementing a simple recognition system.

Here are five principles you can use to develop a recognition system in your business.

Be open
When you implement any changes, it’s natural for people to be skeptical.

This is why it is important to explain why you are introducing a recognition system and explain how each measurement helps the business, which in turn is good for employees.

Start small
Test out the system with one department or with a small group. Use the feedback and report to the rest of the company.

Build a team
You can’t change a business on your own so appoint a “recognition team” to support the initiative.

Break down projects
Every key project or activity in your business needs to be broken down into mini-milestones. This will allow your employees can easily see and recognize progress.

Be transparent
Make each mini-milestone visible by using a dashboard and displaying them in prominent places in the business so everyone sees the scores. Building a sense of individual accountability and team spirit.

Take time out
Give yourself and your employee the opportunity to pause, reflect and celebrate after small successes.

Host celebrations, and record the evidence – updates on company Websites and press releases can be used to build SEO and your brand.

Implement a recognition system and celebrate small, quick wins along your journey.


Most common measurements

A business owner or manager needs information to manage a business – this information is reported in numbers. These are the most common measurements.

Sales verses target
Most businesses set financial targets for the year ahead and track their progress. The forecast starts with sales and are linked to marketing spend and sales people. This way you can see what’s working and what’s not, so you to make decisions on all sorted of thing including marketing tactics, training, funding, recruitment and equipment.

But, unless your business is very predictable the forecast and targets are just your best guess which is why we recommend monthly or at least quarterly reviews.

A combination of Google Docs and budgeting feature can be used. Or, you can use systems like which make planning and budgeting very easy.

You can track growth in terms of number of customers, sales and/or average spend month-by-month or by comparing quarters or years.

Once again, accounting systems like enable you to track these numbers.

Profit Margin
Profit is not always the priority – it depends on your stage of business. If you are a new start you may decide to make a loss so you can maximize growth and market share.  The more mature the market is, the more important it is to return a profit as a reward for early losses. You can track gross and/or net profit margin.

You’ll need to make some accounting adjustments to your bookkeeping to have accurate figure which is why we recommend preparing management accounts.

Net Promoter Score
One of the most well know ways to track customer satisfaction is called the Net Promoter Score (NPS).  It is very simple – just starts by asking customer “On a scale of zero to ten, how likely are you to recommend us to someone else?” You then apply a formula to calculate your NPS score.

According to research from leading management consultancy Bain and Co, the higher your NPS score the higher your growth will be compared to other companies in your sector.

Scores can be collected with scorecards or email surveys.

Employee Engagement
Just like the NPS – businesses with high employee engagement experience higher growth rates, and higher staff productivity.

There are systems you can use to help you such as

Be careful with goals

Setting goals is common business advice. Hundreds of studies have demonstrated that setting goals can improve results.

However, a Harvard report has identified five potential negative side-effects of goals, if they are not well thought through. These are:

  • Unethical behaviors
  • Unanticipated behaviors
  • Neglected areas
  • Reduced teamwork
  • Reduced motivation.


To help you set goals which achieve the results you want, without any negative side effects, here are 10 questions to think about when setting goals.

Question 1 – Are goals too specific?
Narrow goals can blind people to important aspects of a problem.

When setting goals, make sure that goals are comprehensive and include all of the critical components for firm success – for example quality as well as quantity.

Question 2 – Are the goals too challenging?
The key is to provide the resources and training to enable employees to reach goals.

Question 3 – Who is going to set the goals?
People are naturally more committed to goals they help to set. But, be careful to ensure that people are not tempted to set easy to reach goals.

Question 4 – Is the timeframe appropriate?
Be sure that short-term efforts to reach a goal do not harm investment in long-term objectives.

Question 5 – How could the goals effect risk taking?
Be sure to think about what are acceptable levels of risk.

Question 6 – How could the goals encourage unethical behavior?
You may need to include safeguards to ensure ethical behavior while attaining goals.

Question 7 – Can goals be tailored for individuals but still fair?
Make sure goals are perceived as fair because employee perceptions of whether rewards fairly match effort and performance can be one of the best predictors of commitment and motivation.

Question 8 – How will goals influence organizational culture?
Think about the culture you are trying to create. Consider setting team-based goals as well as or instead of individual goals.

Question 9 – Are goals reducing motivation for the work?
Assess employees motivation and appreciate that goals can reduce motivation for the work because employees can be focused on the rewards for achieving goals  .

Question 10 – What is the ultimate goals
Think about the organization and what type of goal is most appropriate? In complex, changing environments learning goals may be more effective.

Xero advice on invoicing

Xero accounting software have analysed over 12 million invoices and asked 1,500 small businesses for their tips and tricks how to get paid on time.

This post takes the key lessons from the Xero article and includes the key challenges and tips on how to get paid faster.

The four key challenges are:

Challenge 1 – Being busy
Not having enough time is a common an issue. With invoicing it takes time to get invoices out and follow them up. Some business owners say they spend up to 10% of their time creating, sending and chasing invoices. Be sure to factor this into your plans.

If you use Xero you can set automatic reminders and use the smart phone App to issue and chase payments on the go.

Challenge 2 – Payments for multiple invoices
To make life easier, make sure your clients include your invoice numbers as references for every payment they make. You can include this in your terms and conditions along with management fees if they do not provide details.

Challenge 3 – Billing for all work
Have a job management system and use job numbers. If you are a service business, consider using time recording software. And, make sure you record time accurately, just in case the customer questions the bill.

Challenge 4 – Customers putting invoices at the bottom of the pile
Instead of trying to create an eye-catching invoice build a positive relationship with the customer.

Here are ideas on how to get paid faster:

Tip 1 – Discuss payment terms before you get started
As well as your rates get upfront agreement on payment terms so there is no confusion down the track. Link the price to on-time payment.

Tip 2 – Invoice as soon as possible
Send your invoice as soon as possible after the work when the value of your work is still fresh in their mind.  The sooner a client receives an invoice the sooner they can pay you.

Tip 3 – Communicate with your clients
Instead of letters and emails it is often best to pick up the phone and talk to someone. And, make sure your invoice is sent to the person who pays the bills.

Tip 4 – Add ‘overdue’ charges
Be commercial and strong – you’re in business to make a profit not to fund everyone else’s business. The law allows you to charge interest and a fixed fee for late payment starting at £40.

Tip 5 – keep your payment terms short
You don’t have to offer 30 day terms for payment. If you hit your clients’ deadlines, there’s no reason why they shouldn’t pay you on-time. Remember that on average customer pay invoices two weeks after the due date.

Tip 6 – Call early and call often
Let the client know immediately the account is overdue. Send a statement or reminder after a few days, and pick up the phone if the payment is overdue by a week or more.

Tip 7 – Make the invoice clear and easy to understand
List the details of the job in a way that makes sense to the client to avoid any confusion and delays.

Being a small business owner often means you’re short on time, but it’s worth putting in the effort to get your invoicing set up properly. Create a process based on using technology.