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Archive for the ‘Profit Improvement’ Category

The power of a checklist

Would you get on a plane if the pilot didn’t go through the pre-flight checklist? Would you be happy for a surgeon to operate on you without using the checklist recommended by the World Health Organisation?

I didn’t think so – most people on the receiving end of an important service would prefer the person delivering the service to use checklists.

Checklists are very powerful. A simple five step hygiene checklist was tested in an Intensive Care Unit in 2001. The results were amazing – after 12 months the 10 day infection rate was down from 11% to 0% and after 15 months it had prevented 43 infections, 8 deaths and saved £1.3m in post infection costs.

Checklist is something every small business can use to grow and get a competitive advantage but it’s not to implement easy.
Many people (especially experienced) don’t like checklists because they don’t think they need them and/or they don’t like feeling controlled.

Here are some strategies to help implement checklists in your business.

– Share your company’s non-financial purpose so your team buy into your vision. Link the use of the checklist to the outcome you want to create in the world

– Explain that it’s not about the checklist; it’s about the culture of discipline and teamwork

– Remind yourself and your team that the most intelligent well trained people in the world, like surgeons and pilots, use checklists

– Start with key systems and grow the number of checklists

– Get your team to build the checklist

– Celebrate the impact of checklists

– Explain the cost of not using systems and how this impacts everyone financially and non-financially

– Make sure systems are available at the right time in the right place

If you’d like to find out more we recommend reading The Checklist Manifesto by Atul Gawande.

Free Profit Improvement Software

Every business needs to think and act strategically, including Sackmans.

One of my target markets is start-ups and small businesses that want to grow. I feel this segment of the market deserved a separate brand, so I have created Ten Accountants. The names suggest “perfect” as in the Dudley Moore film.

I know there is no such thing as perfect but I think it’s a worthwhile direction.

I’m working with other accountants on this and our aim is to create the perfect business development system; a guaranteed way to launch a successful small business.

One of the things we are doing is building business management software. This will help you manage the business, projects and people – including yourself. This software (if sold separately) would start at £50 plus a month for three users. But, the value is far more that £600 – what would 20% or 30% growth every years be worth other the next 5-10 years?

That software will be available in a few months. In the meantime you can use Profit Improver. This is a system that will help you figure out how to improve your profits. You can look at the impact of relatively small improvement to your key drivers over the next five years.

If you are interested in a service which is more focussed on business development and growth then maybe Ten Accountants would suit you better than Sackmans.

We use Xero Accounting software with all clients because of the budgeting feature. This allows you to set and report against targets.

Get in touch if you’d like to know more.

 

 

Direct access to Barristers

Many small business owners are not aware that the law changed in 2004 to allow them direct access to a Barrister.

The benefits of using a Barrister include getting specialist advice before significant legal fees are incurred. Barristers have a deep understanding of the law and the rules of the courts, from frequent appearances in courts. They are experts at legal strategy and dispute resolution, whether in a court or mediation setting.

You can also use a Barrister as a second opinion (to check you are getting best advice) and/or as part of your negotiation.

Not all Barristers are qualified and able to give direct access. However, there a several thousand qualified for direct access and the Bar Council operates a Website where you can find a specialist in the field you need and who is local https://www.directaccessportal.co.uk/

The majority of Barristers are self-employed and share the cost of premises, which are called Chambers. This means costs are affordable and allow expert advice on topics such as:

  • Employment disputes
  • Copyright and trade mark
  • Business leases
  • Debt recovery

 

If costs are an issue it can be possible to arrange finance for legal costs https://legalcostfinance.co.uk/

5 ways to cut costs

At Sackmans we prefer to focus on increasing the profit by increasing the top line. But, cutting costs will increase the bottom line so here are five ways to cut costs.

1. Energy

One cost to look at is energy. According to the Department of Energy and Climate change estimates small businesses can save between 18% and 25%. Simple ways include:

  • Energy saving lightbulbs
  • Timer switches and sensors
  • Draught exclusion and insulation
  • Double glazing

 

But, there are other opportunities including reducing the office temperature by 1 degree which could reduce costs by 10%.

2. Manage cashflow

Avoid overdraft fees, interest and fines by having a heathy cash balance.

One way to collect money fast is to no give credit. The value of credit is the interest on your invoice for 30 or 60 days which is likely to only be a few pence. If you have a positive cash balance you can also take advantage of prompt payment discounts and negotiate harder with suppliers.

If customers are paying late consider charging 8% onto the base rate and charge a fixed fee of £40, £70 or £100, depending on the size of the balance.

3. Embrace technology

Leading global consultancy business estimates small businesses could increase productivity by 10%.

One example is using online technology like Xero to streamline your accounting function. Other initiatives include:

  • Email newsletters rather than printed newsletters
  • Using Skype rather than the phone or mobile
  • Switching to VoIP services for telephones

 

4. Employ great people

Employing the wrong people will cost your business a small fortune.

To do this make sure you share your vision for the business and employ people based on values. Remember, you can train skills – it’s much harder to develop the right attitude.

Use business, project and personal Key Performance Indicators to drive productivity and develop a winning team.

5. Outsource

Consider outsourcing activities that you are not excellent at or could be done cheaper by a supplier.

Sackmans could take care of your bookkeeping saving you the hassle of finding and managing a bookkeeper.

Perhaps it would be better for you to outsource elements of your marketing. If you are an ecommerce company could you have stock stored and distributed by Amazon? In time your business premises may reduce in size or disappear altogether.

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 Xero.com budgeting feature can be used. Or, you can use systems like LivePlan.com which make planning and budgeting very easy.

Growth
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 Xero.com 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 https://www.officevibe.com/.

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.

Pricing lesson from Apple

There are many different pricing strategies but by far the most common is cost-plus.

This is where a business looks at the cost of time and/or materials and adds a margin on to work out the price. The problem with this is that you are internally focussed rather than external which is thinking about the customer.

Cost plus pricing works and is low risk but there can be huge opportunity costs because you are not focussed on what the customer wants. You can overlook opportunities to make more sales and achieve higher prices.

An alternative to cost-plus pricing is customer value pricing and Apple is a good example of a business that does this well.

This year Apple launches the Apple Watch with three editions – Watch, Sport and Edition. They are basically the same watch but they are aimed at different segments of their market.

You can do the same by using “Personas”. This is where you create fictitious ideal customers and use them to help you develop your product/service based on your understanding of what they value.

The three Apple watches are aimed at Average Adam, Sporty Sam and Businessman Bill. The product has been differentiated on design rather than functionally. The design is driven by the intended use.

Think about it. It’s not ideal to wear a sports watch into a serious business meeting and who wants to wear a heavy metal watch on a run or into the gym?

Apple wants as many people to enjoy value from their product and they want to extract the maximum possible price from each segment.

You can explore doing the same by using personas.

How much is fraud costing you?

A recent Portsmouth University study indicates that the National Health Service in the UK is losing a staggering £5bn to fraud each year – approximately 7% of healthcare budget. Could your business be losing money today because of fraud?

As a business owner you can look to prevent fraud with vetting employees, implementing an anti-fraud policy and running fraud awareness training sessions. But, what are you doing to detect fraud that is happening?

If fraud is happening in your business the longer it takes you to spot it the higher the price. There is no guaranteed way to spot fraud but here are 7 steps to help you.

Step 1 – Understand your exposure
An assessment would look at internal and external threats although internet should get more focus because this is where the greatest risk is. However, technology is only increasing the external risk with cyber crime.

Step 2 – Be aware of signs
The key signs include people living beyond their means or experiencing financial difficulties as well as close association with suppliers or customers and/or having excessive control issues.

Step 3 – Engage your people
Most frauds are detected by tip-off so the best way to protect your business is for your employees to act as a fraud detection team.

This starts with the directors publicising an anti-fraud policy. Next, the key individuals in the fight against fraud need to be clear on their personal objectives and anti-fraud responsibilities.  The business must support the fight with anti-fraud training for both managers and staff.

Step 4 – Effective reporting
Make sure you have a fraud hotline which employees trust.

To increase the chance the hotline is used, make sure the whistle-blower’s identity will remain confidential. And, it is vital that employees believe that you will take action following the disclosure.

So, you need to have an effective investigation process which keeps the whistleblower informed of progress.

Step 5 – Carry out checks
This is where managers play an important role and there are two things they should focus on; transactions just below control levels/limits and expense claims with subsistence and travel.

Step 6 – Use data mining tools
Rather than rely on manual checks, data mining software and high life anomalies, trends and risk indicators.

Step 7 – Take action when fraud is detected
The anti-fraud policy should make it clear that fraud will not be ignored, anything unusual or reported will be investigated and there will be consequences.

Consequences would include dismissal and the fraud being reported to the Police with a request for prosecution.

It is recommended that reporting to the Police be automatic and without regard to any brand damage with stories appearing in the media. This is because most employees who commit fraud are first time offenders and the threat of jail is a key lever for protection.

Summary
Fraud, by its very nature, can be difficult to detect and the 7 steps are not a guarantee that you will not stop it or catch it. But, they do send a message to employees and give the directors and managers a framework to work within.

How to increase prices – part 2

When looking to increase prices, it is vital to understand that different customers are willing to pay different prices. Like first class, business and economy on a plane.

If you have a single price it’s either nearly always too high or too low and whatever it is you will lose. Think about it, if the price is too high they will not buy from you and you lose. If the price is too low they will buy but they will pay you less than they are willing too and you lose again!

The key is to find creative ways to charge different customers, different prices based on what they are willing to pay. This is called Price Discrimination.

Let’s have a look at some numbers to see the implications of that idea.

Let’s say you have a hundred customers and 90 are willing to pay just £5 for whatever you sell but 10 customers who would be willing to pay £10.

If you charge everyone £5 (regardless of what they are willing to pay) and let’s say the cost of supply is £4, you will make is £100. But, look at the alternative – if you charge 10 customers £10 your profit goes up to £150. That’s a staggering 50% more – what would 50% more profit mean to you?

The idea is to charge different customers different prices, legitimately without ripping them off. That’s our challenge and the great news is it’s happening all around us already.

Here are six ways to do this:

  • Trade-ins
  • Quality
  • Timing
  • Bundling
  • Channels
  • Concessions

 

The first example is trade-ins.

Have you ever wondered why a white goods retailer is willing to give you £50 for an old washing machine against a gleaming new one? They don’t want your old rusty washing machine. They probably just throw it away which would cost them money. So, why on earth they would pay you £50?

Well, the answer is this is one way of charging different customers different prices. Think about it, if you already have a washing machine your need for a new one is not as great as somebody who does not have a washing machine.

For example, if you are a newly married couple you need a washing machine and you are probably willing to pay more for it. But, if you are a happily married couple, whose washing machine is still working fine, you do not desperately need a new one – so perhaps you are not willing to pay so much.

The second idea is making a quality distinction.

Can you have a premium and an economy version of what you sell? Pubs do it; the same pint of beer is more in the lounge bar than it does in the saloon. The same words in a book cost more in hard book than in paperback. It’s not cost that driving the products prices. It’s the fact that different customers are willing to pay different price.

The third strategy is charging different prices linked to timing.

Many businesses offer or allow customers to pay different prices according to a time dimension. For example, a peak time train ticket cost a lot more than a ticket on after 9:30. Peak rate phone calls cost a lot more than in the evening. Peak time drinks in a bar cost a lot more than in happy hour. All these are examples of how businesses have introduced a time element to charge different customers at different times different prices.

The fourth strategy is bundling.

Ever wondered why when you go a restaurant you can chose of the expensive A la Carte menu or a set menu? And, on the set menu there are usually some of the nicest and most expensive things on the A la Carte menu.

But, they are bundled together at a ridiculously good value. Sometimes you pay the same for a three courses about the same as the one main course off the A la Carte.

How does that make sense from the restaurants point of view? Well, that’s perfect because they know that some of the people that are coming will be budget conscious. There will also be others who don’t give a monkey’s about the prices because they try to impress the person they are with.

So, they will order the A la Carte and expensive wine. Some people are willing to pay more than the others. If you had a single price you wouldn’t be able to accommodate them and that single price would either be too high or too low.

Also, restaurants will not let that happen. They have a set meal and a wide range menu. So different customers pay different prices and the restaurants make a lot more money in the process.

The fifth way to change different prices is the channel through which you sell things.

Think about it the same roll film cost a lot more in Disneyland than it does in boots chemist. It’s the same product but the channel through which you buy allows different prices.

Products and services tend to be available cheaper via the internet than in person. Those people who are willing to pay more for personal service can, others who want to pay less also can. Dell online is a good example.

The sixth strategy is concessions.

Why do businesses like cinemas, hairdressers and museums offer old age pensioners, children and students a price lower than they do the vast majority of the rest of us?

Because they recognize old age pensioners, children and students can’t afford as much of that single price.

A lot of people wouldn’t come in and that will be crazy because it’s all about maximising revenue from the capacity. It costs the cinema the same if they are full or have either seats, any extra revenue from concessions is all pure profit.

Concessions allow some people to pay less and we don’t object to that, it’s just the way it is.

The challenge for you is to find ways to take these principles and apply it to your business so that your customers can pay different prices.