Archive for June, 2011

If you are a Freelancer or Small Business Owner in the UK, it may interest you to know that a new magazine has been created just for you.   The BritishSME magazine is very new, with just 2 issues under its belt, produced every 6 months, with lots of great information for all types of small companies.

The initial two editions covers such topics as tax changes, staffing, insurance, bank lending, and all kinds of other small business news.   What is also useful is a range of ‘Best Buy’ tables for company banking, credit cards, mortgages (for Buy to Lets) and insurance.

The magazine is produced in both electronic and printed versions – you can read the editions without signing up but by signing up you can have the magazine delivered to your in tray or letter box.

As a say, it’s a new magazine, but I for one wish them the best of luck.    You can read/download existing issues or sign up for future issues here.

In some ways your freelance, contracting and small business is a bit like a child.  You want to watch it grow and succeed, but you can never take your eyes of it in case it can get hurt.   There are many dangers to a growing business – from bad accounting, to loss making projects, through to difficult customers.  All can potentially cause your business to stumble, fall and fail.

Whilst it’s impossible to foresee all potential dangers and all issues that might arise, there are steps you can take to make your business as bullet proof as possible.  Whilst these may not stop all problems, they can deflect a lot of problems, and lessen the impact of those that do get through.

I (and my business) have been saved by a number of these pro-activate steps over the years:

20 ways to make your Business bullet proof:

1. Be specific about everything – when dealing with customers be specific in word, email and printed response on; dates, what you will provide, what you will do, what you won’t provide or do, what the customer should be doing
2. Get a signed work agreement for all work – get them to physically sign or e-sign the work agreements (a contract by any other name) before you start
3. Confirm every meeting action and phone call decision in an email – a quick “summary of our agreement” email ensures everybody is clear about what was said
4. Have a plan – without a plan you cannot stay on track.  Just chunk up the activities needed to make the delivery and track those done against those outstanding.  Include both your and your client’s activities
5. Save every project decision into a project email folder – I generally have an email folder for each project, with sub-folders for agreements, general communication and issues
6. Keep copies of your sent decision emails – place them in the same email project folder.  Very useful to pull out should disagreements arise.
7. Communicate – with everybody – all the time.  Nothing worse than a black hole where nobody knows what is happening.
8. Use project systems for communication – I use cloud based project management, which allows everybody to share what the status of the project is, tasks, risks, issues and project files.
9. Don’t assume anything – email or call and ask the question.  If you do make an assumption, confirm it with the customer and file the communication
10. Don’t leave it to the last minute – complete as soon as possible to add ‘breathing room’
11. If needed, get somebody else to be the bad guy – If you want to be the helpful person, use somebody else (a spouse maybe) to send the firm “NO” emails
12. Backup, backup and backup – Disks really do fail all the time.
13. Confirm as you go – Provide mock-ups, alpha, beta and other staged releases.  The sooner they can review, the sooner they can provide feedback and make sure everything is as they expect
14. Have a plan B for everything – customers, resources (that means you), order of work.  Things will always go wrong, but having an alternative plan means you can switch without worry
15. Track everything as you go – accounts, taxes, profits, time, deliverable items.  This way, you won’t be surprised with the tax amount to be paid, if you made money on projects, what is due.  Nothing worse than a tax bill which cannot be paid.
16. If a problem does exist, communicate with possible solutions – much better to say there is a problem, with 2 or 3 suggested solutions for the customer to pick from, than let the customer find out on their own.
17. Keep time, money and resources in reserve – whether working on customer projects, your business accounts, or internal work, factor in a buffer for all aspects.
18. In the event of change, control via ‘change management’ – don’t let projects or work slide out of control.  Stick to the agreed project agreement, and create new sub-projects once the main project is done and delivered.
19. Use tools such as Google Alerts to track you name – just in case somebody is really unhappy, Google Alerts will tell you as soon as somebody blogs or comments about you or your company on a forum.
20. Expect there will be trouble and roll with the blows – No matter what you do, problems will arise.  The secret is to control them in a calm way, find solutions, and keep the impact as small as possible.  The above steps will help.

One of the things I like to do from time to time, is reward people.   I reward myself when I do a good job (it acts as a positive boost to doing more good stuff), I reward my company (through purchases or investments), I reward those that help me out (friends who offer advice, accountants, etc) and I like to reward my customers.

Rewarding my customers has so many advantages:

• It’s a true reward – a big old Thank You for their business
• It keeps my company on their mind
• It gives me an opportunity to ask for favours

But, there are a few rules I try to stick to make the rewards worth while:

• I don’t reward at Christmas.   My customers are overloaded with cards and cheesy gifts – I want to stick out
• I avoid the cheesy presents
• I want to make the reward personal for them – but with as little effort by me as possible

Avoiding Cheesy Rewards

I don’t know about you, but I see so many pens and mugs with company names on them – that they loose any impact.  Pens generally get passed around from person to person, and mugs don’t give a good image when the logo fades and the inside is brown with tea stains.

Also, there are the ‘plastic’ gifts provided by the gift companies – highlighters, pen stands, mint holders, company card holders – all are (in my view) cheese.  They offer no value other than to give the recipient something to find in a letter.  They just don’t do it.

Finding something with Value that Lasts

So what I am talking about is something that has real value – something that lasts, something with your company name on, and that something the person will want to hold on to.   Believe or not, such gifts and rewards are available, and are fairly easy to find.   They are the things you use yourself and you value.

The example that my company is sending out this year is a one year membership to the Gourmet Society.  It’s a card which gives you either 25%/30% off a meal at thousands of restaurants around the country, or free meals (when you buy another meal).  Eveybody likes to save money, most people like to eat out, and the card needs to be presented to be used.  It carries our company logo, so whenever they eat out, it’s like our company is there, footing some of the bill.

The cost of a one year membership for each one of our clients is £25 – and for that they get the card (with our company name and logo printed on it) and a printed directory of the thousands of restaurants the card can be used in.  It’s pretty impressive when first received, and it’s pretty impressive each time you use it – for £25.

This is the type of reward I like to send out.

Making It Work Harder

Now to make the gift work harder, I am doing a few things.  Not only am I sending one card out to each major (or sub) contact of each company that has given us an order in the last 12 months (with a big Thank You for your business), but I am asking them for something in return.

I am using the opportunity to ask them to complete a new customer survey (so I get some feedback on how well our company is doing).  But, I am not asking them for more business – I am not trying to use it to sell.  It is genuinely a reward, a thank you – for selecting my company to provide a service when they could have gone elsewhere.  And it’s being sent in the summer, so it’s ‘out of the blue’ – a nice surprise rather than being a Christmas sales push.

But, whenever they use the reward, they will of course be thinking of my company.

The Legal and Money Bits

There are a few legal bits to consider when selecting the Reward.  First of all, it’s important to avoid anything which has high duty charges.  So gifts of alcohol, fuel and such are not allowed (or you will be fined if the revenue ever find out).  You also can’t  send a reward of money, property, cars and such.

To be tax efficient, it needs to carry your company name.  Giving a golf club may be a nice gift, but if it doesn’t have your company name printed on it, it can’t be considered a corporate sales promotion – and a promotional gift is how to make the revenue pay for most of the reward.

Currently, the first £10 of value of any such gift can be completely written off in terms of corporation tax – this applies per receiver/person per year.  Beyond this £10, you say just the 21% corporation element.   Don’t forget to include the cost in your tax calculation to get the money back on the ‘gift’.

I found myself in an interesting discussion the other day on profitability.  To be specific, the discussion was centred around how much profit is enough?  When you work on a project (be it a contract, or a freelance/small business ‘project’ for a customer), what is a typical profit % you should be happy with?

Now when I was a permie, working for somebody else in a large(ish) software house, it was drilled into me that they were looking at a profitability of around 25%.  This is fairly typical and expected.

Of course, how you measure profit can change the number, but they (and now me) calculated profit as the difference between how much you charge the customer, minus tax due, minus the cost of your time (including your expenses and tax).

So, take a project where your final invoice is for £1000, but your costs (for your time, salary, teas, coffees etc) add up to £750 – your simple profit may be £250 – but is it?  The answer is – no, it may actually be:

£1000 (invoice), minus £200 (vat element ),  minus £750 (your cost) = £50 profit.  And of course, of that £50 profit, you then have to remember that you pay corporation tax of around 21%, so that’s another £10.50p off the profit back to the government.  Ouch.  Where did the money go?

A couple of recent examples

I track my own time, so I can work out my own costs on projects.   This also allows me to make sure I am making a profit at all stages of the project.  When I am in profit, I am more open to scope creep and ‘favours’ for customers than when the profit starts to dissolve through unplanned work.

If I take 3 or 4 projects this year, the profitability has varied from a low of 22%, through to a high of 75% (yes, 75% of one project was profit).   This is achieved by efficiency savings through process and development automation, use of tools, and through running multiple projects at the same time.  Yet, each customer has still felt (I hope) that they received what they pay for and received good value for money.  I also charge as if our processes were performed manually (so we make money through our efficiencies).

Double Edged Sword of Profitability

Of course, being more profitable is a double edged sword.  Yes, it’s good to receive more money and it’s good to see the bank balance rise.  But, the amount of corporation tax grows with it – which hurts.   It’s a sad fact that in the UK and USA, most individuals are paying around 68% of our income in tax (think income tax, national insurance, then VAT/sales tax at 20%, extra duty on alcohol and fuel, insurance tax, etc).  When you run your own company, this increases to around 76% paid as tax (with corporation tax).

In a Nutshell

So what does this mean in terms of what you should make as a profit?  Well profit can only be made if people give you work.  Charge too much and you have higher profits but less work, charge too little and you make no profits and become a busy fool.  But think about how much profit you need (or want) to make, and track your projects to make sure you stay on track.

If in doubt, take 25% as a target, and adjust it as you go.

Regardless of who’s fault it is, and no matter what the collective Finance ministers vote to do in order to help other struggling counties (Greece, Spain and Portugal, I am looking at you), the worlds finances are still in trouble.

All countries have massive public debt.  In the UK, the government is still continuing to borrow more from the debt pot than we repay despite all the corrective measures.  At the end of the day, it can only be repaid from one source – us.  Jo Public.  You and Me.

At each budget review, taxes change in terms of what is allowed, what must be paid, what can be claimed and of course, what your company has to pay.  In order to pay off the debt faster, each budget will get tougher and the government will want us to pay more and more.

Staying Up To Speed

There are several ways of keeping an eye on the tax situation.   If you have a good accountant, they can advice and steer you in the right direction.   There are radio shows (BBC Radio 4 Money Box and The Bottom Line are good examples), magazines and books.

Personally, I like to stay informed.   It’s all well and good having an accountant to help, but when it comes to money, I like to know the options as and when they become available.  I also like an independent source of information.

Indicator

One very good independent source of advice is provided by a company called Indicator.  They provide fortnightly newsletters on a range of business matters including perks for directors, tax tips, investments, corporation tax, expenses etc.  All of their publications have one goal – to allow you to be aware of legal ways of avoiding paying tax.

If you can pay less PAYE, hold back some of the VAT, and reduce the amount of corporation tax you have to pay, it’s all money for you and your company.   All the recommendations are provided in an easy to understand language, with real examples and how the calculations work.

The advice provided by indicator is not free, there is a half yearly or yearly subscription – but for every subscription there is a money back guarantee.  If after the 6 months or year you have not saved at least the cost of the subscription in tax, you get the money back.  A typical half year subscription is around £31.

The only word of caution is that they do provide a MASSIVE amount of different newsletters.  I would generally recommend the “Tax Tips” news letter which covers most tax subjects fairly well.  If you are interested in a particular subject (such as corporation tax, company cars, benefits etc), they also have books which you can purchase for a one off fee.

But at the end of the day, if you are looking for ways to cut the amount you pay to the government and put more money in your pocket, Indicator is recommended.

Over a coffee (Tea in my case), I was speaking to a freelancer the other day about a project which had just been cancelled on him.  In fact, it wasn’t just cancelled – he had delivered it after weeks of work to be told the five worst words we all dread to hear – “We want our Money Back”.   Apparently, everything that could be wrong with the delivery was wrong.   The client would not even speak with this poor chap.

It turns out his mistake was simply not to ask enough questions.   He had asked a few at project kick off, but he wanted to maintain that “I know what I am doing” illusion – so the questions had been few and far between.

This was a mistake I made when I first started my own business – but I learnt that lesson quickly through my own pain.   Now, I have what I call my Never Ending Question Sheet.

It works like this – I do very similar projects over and over again.  So what I have is a list of questions in an excel spread sheet for each type of project.  As an example, for a data base project, I will ask questions about the source of data, is there other data sources (spread sheets, access databases etc), versions of database, is it due for an upgrade, any unusual (foreign)  characters, is it encrypted, etc.

Whenever I am working on a project, if something happens or which I have not asked about before, I just add it to my question sheet – it then builds up over time and gets better and better with each project.

When the next project comes in and I need to bid, I have a set of questions ready – a quick review to make sure I am not asking anything irrelevant, and it gets sent off.

This has saved my bacon 4 or 5 times in the past.  On one occasion, it triggered the client to reveal a whole host of extra work which raised the price (without this discovery, I would have had an awkward conversation about extra funding half way through the project).  On another occasion, I won the work and the client said it was down to the quality of the questions I had asked.

My friend has taken this advice on board, and has started his own question sheet.

There is an old quote about selling Power Drills which goes:

The customer Doesn’t need a Drill.   What they need is a hole

The same is true with anything anybody sells – they don’t need the Thing – they need the Outcome.

They don’t need the car, they need to be able to get to somewhere whenever they want.   They don’t need a seat on a plane – they need to be somewhere else that’s sunny.  They don’t need the flashy new web site – they need more customers.   They don’t even need that consultancy service – they need answers and advice they can depend on.

It’s an interesting flip on sales thinking.  Are you selling the Thing, or the Outcome.

It’s one of the things I am testing in some web site, brochure and leaflet changes.   My web site was all about the service I offered – so I am trying versions that are all about what the Outcome is – and its showing good results.

So what are you selling?  The Thing (that nobody wants or needs), or the Outcome?

Is it time to check the wording on your adverts, web site and literature?

Yesterday afternoon I attended a short workshop on gaining more Freelance business.  They had two freelance leaders who talked for 20 minutes each, and both of them told the same story – to gain more business you have to be #1 in your sector.

In a lot of small business and freelance books, I have read the same thing;   Be number one, be the industry expert, be the go-to company, be the market leader.    Really?!?   I mean…. Really?!?!?

That idea may work for big companies in niche areas – where you can throw more money, more staff, more advertising and more service to be number one.   I suspect for the VAST majority of small businesses (including consultants, contractors and freelancers), you have tens of thousands of people up and down the country who do the same as you – how can you ever hope to be number one?

And if you can’t, why are the ‘experts’ telling you to try?   It’s a hopeless, thankless, impossible task.

Which is why I am happy to be number two, or number 10, or number 501.   I really don’t care what number I am.

What I care about is being real, being approachable, having a clear message, having clear and reasonable prices, and being there when somebody is looking for me (or a company like me).

So you be number One if that works for you.  Me, I am too busy being what my customers need.

One of the most boring and annoying tasks a freelancer or small business owner has to do is to chase customers for overdue payments.   Whilst there are no hard and fast rules, I believe that there are 5 stages to chasing payment.

Of course before you chase, you need to know that payment is due.  Tracking invoice due dates and payments is the key to good credit control, so first make sure your accounts system is up to the job to make tracking and chasing as easy as possible.

So my own personal five stages of chasing are as follows:

Invoice becomes Due

It never hurts to tell customers that payment is due.   A quick email is all it takes (some accounts packages like Freeagent will automatically send this (and other) reminders for you).   I keep it simple and straight forward such as:

Jo,

Just a quick reminder that payment is now due on invoice number 9182.  This invoice was in regard to the {whatever the task is that you performed} and was for £999.99 (including VAT).  I would be grateful if you could arrange payment at your earliest opportunity.

If you have already made payment, thank you for your custom and please disregard this email.

Invoice Due + 7 days

Once the invoice is 7 days overdue, I repeat the reminder.  However, in my terms and conditions I have a late payment fee – so I include a note that this late payment fee will soon become payable:

Jo,

Please note that invoice number 9182 is still overdue.  This invoice was in regard to the {whatever the task is that you performed] and was for £999.99 (including VAT).

Can I also take this opportunity to remind you that as per section 7 of our Terms and Conditions, late payment of such invoices is subject to additional interest and an administration fee.    To avoid these additional costs, please could arrange payment at your earliest opportunity.   If you have already made payment, thank you for your custom and please disregard this email.

Invoice Due + 10 days

Once the invoice is 10 days overdue, I send a further email, but now I also state that we WILL be raising the late payment fee (and I raise the invoice the following day – extra money for me):

Jo,

Further to my last two reminders, I note that invoice number 9182 is still overdue.  This invoice was in regard to the {whatever the task is that you performed] and was for £999.99 (including VAT).

As per section 7 of our Terms and Conditions, late payment of such invoices is subject to additional interest and an administration fee.  We are in the process of raising an additional invoice for this fee which will be sent by a separate email.    To avoid any additional costs, or if you have already made payment, please contact me as soon as possible to confirm the payment has been made.

Invoice Due + 20 days

Once the invoice is 20 days overdue, I generally will put the customer on STOP.  Of course, this really only acts as a persuader to pay when I am still doing further work with the customer, but it is another chance to chase and remind your customer to take late payment seriously:

Jo,

** ACCOUNT ON STOP **

Further to my previous reminders, I am having to email you in regard to invoice number 9182 which is still overdue.  This invoice was in regard to the {whatever the task is that you performed] and was for £999.99 (including VAT), and was due for payment one month ago.

Because this payment has been overdue for so long, I have been instructed that we have had to place your account on STOP.  As a result, we will not be able to provide you with any support, continue on an developments or discuss any future service until this invoice is settled.

To avoid any additional costs, or if you have already made payment, please contact me as soon as possible to confirm the payment has been made.

Invoice Due + 25 days

It is vary rare that I ever get to this point in time.  But when I do, I stop sending emails, and start phoning.  Yes, it takes more time, and feels awkward, but at the end of the day you and I have done nothing wrong, it’s the customer who should feel bad for not paying their bills on time.

Yesterday, I was shocked to read on a forum a discussion called “Pay yourself first”.  As the title suggested, the original poster was talking about no matter what, make sure you get paid by your company first.   Ohhh – this does not sound like good advice to me.  In fact, it can lead to all kinds of problems.

But when money is getting tight, who should get paid first?!?   When faced with a pile of bills, demands and threats, who should get the money and who can you put off?   Well, my suggested order of priority is as follows:

1. The Government – Above all, pay the government first.  Pay them all that is due in terms of VAT, corporation tax, national insurance and PAYE tax.   Pay them in full, and pay them on time.  The reason is simple – no other organisation has the powers that the government has.   They can (in some instances) force their way into your house, seize goods, and dip directly into your bank accounts.   At the very least, they can and WILL impose heavy penalties for missed or late payments. Track what you need to pay them at all times, and make sure you keep the cash to one side reserved for when the tax payments are due.  Keep track of what is owed and when you owe it by using a good accounts package such as Freeagent (which keeps a diary of tax payments and a running total of what you owe as it builds up).
2. Service Providers – By this, I mean anybody who provides you a service which you need to run your business.   Your internet ISP, phone provider, and power utilities.   If they cut you off for non-payment, it will be very hard in the future to generate more money to pay the rest.
3. Yourself – Now you can pay yourself.  Go on, you deserve it.
4. Credit Cards – Next, pay your (company) credit cards.   The reason is that if you don’t, you will be fined through massive interest charges – anything from 20% up to 40% depending on your card.  That is a major waste of money and will soon add up through compounding interest.
5. Other – In last place is everybody else; subcontractors, suppliers, general bills etc.   Pay off the smallest amounts first to remove the largest number of outstanding debts.   Where money runs out, I personally think it would be better to be honest with suppliers and say that you can’t pay them now, but should be able to pay them in (how-ever-many) days.   This way, everybody is clear, and they won’t be constantly calling or emailing you.   In these difficult times, it’s also very common to extend payment terms beyond what is on an invoice, so using a line such as “I know it says 20 day terms on your invoice, but our company only ever pays 90 terms” is a good fall back position, as is the “oh, you have just missed our payment run” excuse.