Archive for the ‘accounting’ Category

According to the Federation of Small Business, the economy across Europe and the USA is continuing to ‘fail to improve’.

In a new year report just published, the FSB says that whilst more jobs are being created (which is keeping unemployment down), wage levels are declining and the amount of money that businesses and individuals have available to spend is declining every month – with no end in sight.

As a result, companies and individuals continue to tighten their belts and are on a constant lookout of ways to cut costs.
Whilst I am constantly reviewing all of my spending (both personal and within my Small Business), we as small business owners always need to be wary of cutting costs too far and on the wrong things, which can lead to damaging the cornerstones of our business.

Keeping our Business Cornerstones Intact
Regards of the type of business you run, the size, how successful your business is, or the services/products you offer, there are a few things which every company needs to do to stay viable; marketing, sales, invoicing, accounts, payroll and paying taxes. Without any one of these, a business will soon hit problems and start to die.

So whilst cutting costs are fine, trimming the fat in any of the cornerstone activities can lead to problems. Take marketing….

When times are tough and money short, it’s a very easy decision to cut back or kill any money spent on marketing – adwords can be cancelled, postage is saved by not sending out mailshots, transport costs reduced by no longer attending networking events. Or we may just decide to stop marketing to spend 100% of our time doing billable work.  Cutting costs in marketing can see an instant win in terms of cash flow and reduced costs – but what will be the impact in the future?

You may have work at the moment, but what happens if one or more of your existing customers cancels work, goes under or cuts their own costs (with less work for you). Marketing effort takes time, and by the time you realise you need more work, the damage will be done and it may take months or years to start finding new customers again.

Taking advantage of the downturn and avoiding the future hits
One of the advantages of the continued down-turn is that with other companies cutting costs, competition is fierce. This competition produces a double win for a company willing to keep investing in their cornerstones.

Firstly, with less companies spending money, there is less demand for services so offers are on the table. If you use services such as Google Adwords (or the Bing/Facebook equivilants), this reduced competition means that advert placement is cheaper, which means you can now get more exposure for the same money (in my own adwords campaign, I am getting almost 13% more exposure for the same money as last year simply because there are less companies bidding on my key words).

In addition, the fact that people are spending less means that for the savvy shopper, there are plenty of deals to be snapped up should you need to invest in outside services, training, hardware, rental or finance arrangements. You just need to be wary of headline ‘discounts’ which are not quite as good as the advert pretends to be.

But the main concern in cutting costs on the key aspects of your business is that it could lead to more costs down the road. For instance, trying to save costs by putting off paying taxes (PAYE, VAT, corporation tax, etc.) will lead to all kinds of future pain including additional late payment penalties, interest charges and more detailed scrutiny in the future on top of the actual taxes which still need to be paid.

So by all means, continue to review your costs and outgoings and trim the fat where it makes sense to do so – but always have another eye on the cornerstones of your business, and the ability to take advantage of the downturn where your available cash allows.

I have just decided to treat my wife to a quick weekend break in the spring of next year. I am taking her for a ‘city break’ to Venice, Italy. Its just a short stay – 4 days visiting this wonderful (I hope) floating city of canals, bridges and great Italian food.  The picture below is Venice from the air (I didn’t know its an island, did you?).

But, I am not here to gloat about going away next year.   No, if I am going to gloat about anything, it’s the cost of the trip. From England to Venice, 5 star hotel in the center of the city, flights and transfers is costing me just £22.

Ok – honesty time.  So it didn’t really cost me £22 – it actually cost me £590 – but… in terms of budgeting it only cost me £22, because I saved £570 though other savings.

I have talked before about cutting personal and business costs.  Well in October, I really pulled out all the stops.

For a lot of suppliers, I used the ‘I’m cancelling my account with you (now show me your best deal)’ trick with almost all my personal and business suppliers.

For instance, I struck a deal with Sky (my satellite TV provider) for a 50% discount for 12 months, which saves me £150 a year. And British Telecom (phone for home and business) gave me a 60% discount for 12 months – so that’s another £90. And so it goes on – totaling £570 of savings. Some were instant money back or savings, and some were discounts over time. So the savings were invested in a short break.

And the point is, anybody can do the same – all that is needed is advice about money.

I am not talking about specialist ‘Financial Adviser’ type of advice, its just a question of staying up to date with current advice, warnings of changes which may effect you (such as utility price rises), and taking advantage of the advice which is out there.

So if you are interested in saving/making money (both for yourself and your business), can I introduce to you, my definitive list of great money information (all the changes I made this month which saved me that money came from these sources).

There are a lot of resources out and I could list them all for you, but these are the cream of the crop:

Money Podcasts
BBC Money Box – For UK freelancers, this weekly show brings you all the latest personal finance news
BBC Money Box Live – Again for the UK, a weekly phone in show covering a different topic each week
Which Money Podcast – Another UK weekly podcast, with advice from the Which team
Radio 5 Wake up to money – Final UK podcast – a daily update on all things changing in personal and business money.
Planet Money – Three times a weekly, American based finance news
CNBC Fast Money – Daily updates on US Finance from the CNBC team

Money Blogs
MoneySavingExpert – For the UK, signing up to this weekly email feed is a must, with alerts on finance changes, utility rises, discounts and ways of saving money.  Sadly, there does not seem to be a US version of this site.
GetRichSlowly – A collection of articles about both reducing debt and growing wealth.
I will teach you to be rich – This site is run by Ramit Sethi.   It is less about saving money, and more about growing wealth.

Money Tweeters
@prairieecothrif -If you want to be inspired to live the life you have always wanted in a sustainable way, check out the connected blog.
@retirebyforty – He quit his corporate job! Now you can follow and see if he can stay out of the corporations for the next 40 years, whilst he shares money advice!
@TalkMoneyBlog – They talk about personal money issues and give free information, help and advice about the mortgage market, debt problems, credit cards and money saving tips.
@thisismoney – This is Money: news, conversation, top articles, tips, advice and opinion from the team at the UK’s best financial website.
@lovemoney_com – Lots of useful information to help you have a better relationship with your money.

If you have any other suggestions of blogs, podcasts or tweeters to follow, I would really love to hear about them.   Please, leave a comment below.

When negotiating with prospects, you will sometimes come across the ‘Day Rate Apprehensive’ customer.

Generally, such customers will demand to know your day rate (even if you intend to quote a fixed price project), and will make all kinds of ‘ohhhhh’ or ‘hmmmmm’ noises, and will try to get you to drop your day rate down.

How should a freelancer, contractor or small business owner deal with those demanding a reduction in your day rate?

I have found the best way to keep the rate the same whilst still winning the business is to make them realise that negation on day rate has absolutely nothing to do with the price they will end up paying.

My two suggestions are:

Option 1 – The Duration Equation.  In this discussion, yes, the day rate is indeed one side of the equation.  BUT, so is the duration – how long the project will take to complete.  Talking about a day rate without considering the effect on duration is a zero-net equation.  As the day rate drops, so the duration will increase to balance out the work cost (even if you actually spend the same real time doing the work, and the slack time working on other projects).

Option 2 – The Quality Equation.  In this discussion, you may be asked to talk about the day rate but also talk about the duration – in which case the final part of the equation is the quality.  This is like haggling over the cost of apples; you may get the same quantity of apples for 4p each rather than the premium 20p apples, but they will be bruised or rotten.  If just getting a cheaper apple is the ONLY goal, then a cheaper cost per item is a quick win for the customer – but will either of you be happy in the end?  No!!!  This is the negotiation to be having with your prospect – a cheaper day rate for the same duration may involve a less skilled (outsourced to a lower skill level) freelancer or overseas development house, which in the end may mean a lower quality delivery, which will then cost more with fixes and problems.

Remember, when you offer a service, you can offer it delivered quickly, cheaply and for the delivery to work – but your prospect can only pick two out of the three.

When your prospect demands all three (and a low day rate), they are really asking for a sub-standard delivery which will cost somebody (either you, or your prospect) more in the longer term.  Unless you are really desperate for work, it could end up being you who pays the additional cost, so this is a prospect you should be walking away from.

When they baked your cake in little slices,
Kept your eyes on rising prices,
Wound up winning booby prizes;
I’m sure you’d like to think you know what life is

Lyrics from the Song “Valentines Day”, By ABC

Rising your freelance or small business rates can seem like a double edged sword.

On the one hand, inflation means that your costs are going up and therefore you should be charging more to maintain your profit level.   On the other hand, it may seem like there is a risk that by increasing your prices, it will make selling harder.

But then, if you are selling based on cost, there will ALWAYS be somebody willing to do it cheaper.  So are these the sort of clients you want to be attracting anyway.

Whilst it may be tempting to put off rate increases in these troubled times, delaying a rise could be the worst thing you could do.

Small Verses Big Rises
Inflation in the UK currently stands at around 3%, and at around 1.7% for the USA.

The rate of inflation seems to always be in the news at the moment – everybody knows that prices are rising because of inflation.  Therefore your customers will know that your prices will be going up (whether they admit it to you or not).  A letter of pending rate increases in line with inflation should be relatively easy for your customers to understand.

But, let’s assume that you decide to skip the rate rise for 2012 because you don’t want to hurt sales.   Come 2013, you could increase your rates by the rate of inflation, but that means you’re effectively taking a pay or profit cut.   Do this enough times, and you will soon be out of business.

On the other hand, if you find in 2013 that you need to get your profit levels up to the previous levels, you are writing a letter with your rates up by double the rate of inflation.

You customers will soon forget there was no rate rise in 2012.  You will have customers dropping off of your pending work book faster than you could deal with.   Imagine if you got a letter from one of your utility providers saying that their prices were going up by 6 or 7 percent – you would soon be shopping for an alternative supplier.

Get The Rise In the Diary
I would therefore encourage you to get the rate rise dates set into your calendar as reoccurring yearly events.   I have two dates in my diary for each year:

1. 26^th June – I write to all my current, old and prospect customers with the new rates, stating they will take effect from the 1^st September.  I find this is normally a good way to spur them into raising the orders.
2. 1sth September – Is the date of the rate rise.  I update my price list on my accounts system (Freeagent), my web sites and my printed material.   I also mark any outstanding quotations as void in my accounts system, so that I do not accept quotations with an old out of date value by mistake (good housekeeping in itself).

These dates are in stone.   It’s in my contract, and my customers are used to the dates.  Come the end of June, they know that a rate rise in line with inflation is on its way.

A good source of rise letter
Of course, there is a fine art in creating a rate rise letter.   I find the two stage approach (warning letter followed by the actual rise) works very well and rarely scares off prospects or customers.

Whilst the format of the rise letter is a topic for another time, there is an excellent resource of wording for such letters on the Intuit money form.

Yesterday, I had the pleasure of attended a freelancing workshop with about 120 other freelancers.  This workshop covered all kinds of subjects, from legal issues, to finding work, to working with agents and also finance.  It was an ‘advanced’ workshop – all the subjects were based around the assumption you had been freelancing for a while, so the presentations and discussions covered the more advanced aspects (such as better haggling with agents/clients/bank managers, dealing with difficult legal issues, expansions, overseas markets, etc).

As part of the freelancing discussions around finance, there was a general question asked – who in the group was planning for the ‘end game’?  The definition of an end game was left open – it could be retirement, or selling the business or emigration or even returning back to the (shudders) permanent employed workforce.   Out of the 120 people there, only five or six hands went up (mine included).

This was followed by another question – who has a pension in place?  Out of the 120 people, around 10 hands went up (again, mine included).

Good grief!!!  I was really shocked.

Pensions – Now and In the Future

Now I am not a financial expert, but let me throw some numbers are you.   In the UK, the cost of the state pensions (that everybody gets) costs the UK government £1.13?trillion of public money (2011 figures).   This is likely to increase every year by more than inflation.  By 2020, the IMF has warned that Britain may have to find another £750billion to add to the existing pension payments – and this does not even include the padded public sector pensions (for doctors, firemen, police, etc).  The picture is even worse in the USA.  In the USA, those that qualify for a state pension (not many by all counts) cost the US tax payers $3.7trillion, with around $450billion being added each year.    Frankly, these figures are unsustainable.

This means that if anybody is sitting back thinking that the state will look after them when they retire, they will be in for a shock.  Any form of state pension which does exist in the future is likely to be very basic indeed.  Phrases such as ‘token payments’ or ‘minimum life costs’ are regularly thrown around in pension discussions.   It’s also why so many unions are fighting the pension changes being forced through – all countries have to do some major cutting back on future pension payments.

In a nutshell, if you don’t want to end up spending your ‘golden years’ eating cat food, you should be investing in yourself now.

FTSE, NASDAQ, CAC and DAX are all falling

But we all know that pension pots (be they UK type of stocks investments, or the American 401K type plans) just wrap your money in the markets.  And we all have seen that since the start of the crash in 2008 (actually, since September 11^th 2001 if truth be told) that markets are all over the place.   Pension pots today are worth around 30% less than they were in 2008.   So investing in pensions is a waste of money right?  Wrong!!

First of all, it’s important to understand that markets should always be growing by their vary nature.   Take the FTSE100 – the FTSE100 index (the figure that normally reads 5307.5 (as it is today)) – this is the total value of 1 share of each of the top 100 companies by value in the UK.  So, for 5307p (or £53.07p), you would get 1 share in each of the top 100 companies.

But, the very fact that it is the top 100 companies means that they are the cream of the crop.  If a company does badly, it looses value and drops from the 92^nd most valuable company to the 109^th – it no longer appears in the FTSE100, and is replaced by something with more value.  Thus, by its very nature, the cream rises and the value of the FTSE100 (and all other markets) should be going up.

But here’s the thing – the value of the markets is only important if you are retiring NOW (when you have to cash in).   If you were going out and buying shares in a company – would you want to buy them when they are at their highest value/cost, or when they are at their cheapest?  If you had bought Facebook shares 24 hours after the float, you would have bought them at almost $42, whereas 48 later, they were worth less than $38.   To make money – you buy when they are low and sell when they are high – not the other way around.    Which is why having low prices now is great – more shares for your buck/euro/pound.

As I say, I am no money expert – but that is what pension pots are for.  They are managed by somebody who does know money, and will invest the money in the right stocks at the right time.

Pensions – the advantages

Now apart from the obvious benefit of giving you money to live on when you retire, pensions have one other major advantage – they give you extra money from your local government.   All of the European, UK and USA governments work their pension contributions in the same way.  When you pay into a pension plan (be it employer based, private or 401k), they will pay in the personal tax value of your payment alongside your own contribution.   So depending on what your own personal taxation percentage is (generally around 30% for most people in Europe or USA), for every £100/$100/E100 you pay in, your government will also pay in the equivalent of £30/$30/E30.   All they are doing is paying back the tax you have already paid on the income, but back into your pension pot.

There is no other form of investment anywhere which could make you 30%.   Yes, you are tucking your money away in a location you cannot touch it (until you retire), but you are getting your tax paid back to you as a form of additional investment.  Note: I understand that in the USA, the 401k is more of a flexible investment, and under some situations you can take money out of your 401k in emergencies.  More information here.

Also, having your freelance/small company making a payment into your director’s pension directly from your company bank account is another tax saving option.   As long as you stay within the maximum payment limits (£50,000 per year maximum in the UK), you do not pay any additional personal tax on the payments, and the company can take it as a valid reduction on corporation tax.  It’s a win-win-win situation – just get advice from your accountant or Independent Finance Adviser first.

What you need, when, and how much

Now, how do you know how much you need to save into a pension to know you can avoid the cat-food dinners when you want to retire.   Well there are too magic numbers to bear in mind….

1. Annuities – An annuity is the product you buy with your pension pot the day you retire.  The annuity converts your lump sum into your yearly or monthly pension pay cheques which you can spend.  The current magic number of annuities is 6%.  You will receive 6% of your lump some saved every year as a flat-rate (wont change with inflation) every year from retirement till the day you die.  So if you have a £100,000 pension pot, you will currently get £6,000 a year pension pay (£12k for a £200k pot, and so on).  This annuity figure is based on life expectancy tables – so the 6% changes over time and your specific situation (smokers who are expected to die sooner will get a higher % rate).
2.  Savings Ratio – The other more important magic number is the savings number – how much you should be paying into your pension.  The easy way to work this out is to take your age when you start your pension, halve your age, and that number is the percentage of your monthly income that you should be putting into your pension.  So, somebody who starts a pension when they are 40 should be saving 20% of their pay into a pension.  Now this can be a very scary number – but because the pension’s pot grows larger the longer it is working and saving, it is clearly better to start a pension sooner rather than later – the %s will be a lot lower.

Just for interest and information, I started my pension when I was 18.  I was not so good at paying into it (some missed payments, some reduced payments) until I was around 24 (then I hit it big time).  Now, I pay 20% of my salary into my pension – have done pretty much since I was 24 – so I am fairly happy I am on track.

All of this is then why I was so surprised about how many people at this freelancer’s day had not thought about retirement, and how few had pensions.  I guess they were just hoping (and praying) that the retirement-fairy would come along and sort things out for them, or that their numbers would come up on the lottery.   I was surprised – and a little scared for all of them (there were some jaw drops and white faces when the truth struck home).

Yes, times may be tough now, but times will be tougher in the future if you don’t have a pension.     I don’t know about you, but I don’t much fancy the prospect of eating cat-food sandwiches.  Do you?

More really useful information can be found (for UK readers) here.   If you don’t have a pension, or don’t think you are paying enough into it – please, avoid the cat food, and take action NOW!

If you really want something in this life you have to work for it. Now quiet, they’re about to announce the lottery numbers
~ Homer Simpson, The Simpsons, (c) 20th Century Fox

I have a confession for you: for the last couple of months, I have been having a real struggle to make both my company current account and my own personal account balance.  At the end of both March and April, I have really come close to running out of money.  For instance in April, I only had £12 left over in my personal account from the start of the month to the receipt of the April pay cheque.

But you know what…. I love it.   These two months have caused worry, caused stress, and at times it has caused panic.  But it has been really useful.

Broke By Choice

The reason I have been really stretched over the last two months is because I made a choice to stretch my finances.  My company income is the same as it always was (good), my pay (from my company to myself) has been the same, and I have not had to deal with any massive unexpected bills.  Yet still I made a choice to be broke.

You see, over time, I have found that money has become surreal.  I happily pay bills on behalf of my business which would make me flinch if I were paying them personally.  And with my own personal money, I have spent more this year on big ticket items (holidays, electronics, etc) than any previous year.  My own view of money has become warped.  Money is a tool, and its value (to me) has reduced over time.

How and why I made myself broke

First, let me say that I didn’t really make myself or my company broke.  I didn’t just wake up and give my money away to strangers on the street corner or start burning notes.  Instead, at the start of March, I changed a number of standing orders to investments to be a lot higher than I could really afford.  When I say I could not afford these overpayments, that would be putting it mildly.

I paid a lot more into my pension, transferred a lot more into my various savings pots, transferred more company cash into bond accounts and generally took a lot more out than was going in.  But because they were all transfers into investments, I wasn’t really throwing it away – I was just investing a lot more.

But the effect was the same; I was making the amount of cash ‘available’ a lot less than the previous 12 months.  And of course that meant that I didn’t have enough to pay my bills.  Which was the point of the exercise.

It forced me to take a long hard look at all the money coming out of my personal and company bank accounts, for bills and salaries and frivolous activities, and forced me to really weigh up the value of the spending.  Without the money available, there was no soft decisions – if it wasn’t paying its way, the payments HAD to be cancelled.

A great exercise for added value, and working out Real Value

I guess I could have just gone through an exercise (as I do now and again) and reviewed my outgoings, but that would have been too easy.  I could have looked at my various magazines subscriptions and decided, that yes, I did enjoy them and they would have stayed.  But with the money gone, a hard decision was needed.  Four out of my five different magazine subscriptions were cancelled to help with the balancing.

Services my company subscribed to were looked at in cold terms.  If I really could not live without them, they stayed (some reduced in payment terms through haggling) whilst a lot more were cut.  It was a busy review period, but now my payments are a lot leaner because of it.

I am going to keep my overpayments to my investments at the new inflated rate for the next couple of months, and will then reduce them slightly (to bring back 1 or 2 items that I miss).  But the exercise has been really useful.

By taking away the money I need to pay for the frivolous, superfluous and ‘wanted’ (rather than ‘needed’) things, I have saved myself around 25% extra over the last two months.  Plus, my money management is back on track and I have weeded out a lot of padding.

It has been a useful money exercise that I would recommend to anyone.

A question for you: When you look back at your historical quotations, estimates and proposals, is it clear on the documents how long the figures are valid for?

Put it another way, what happens if a prospect from a few years ago knocks on your door and expects you to honour the quotation you produced which is based on your 2006 prices? Do you honour it, or do you expect that you can refresh the quotation with the current prices and everybody will be happy?

On the flip side of this, do you produce quotations and fall foul of saying “this quotation is only valid for 90 days from the date of quotation” (or other such words?) After all, if a prospect wants to raise an order on day 91, I am sure you will be happy to take their money.

For me, the compromise is to reference the date of your annual (hopefully scheduled) rates review, and make that the cut off date when quotations will be valid up to.

Something along the lines of:

This quotation is valid up to and including the date of our annual rates review, which is scheduled on the 2nd of August each year. On the next review date after the date of this quotation, the prices shown will need to be refreshed with any amended prices to be valid.

Last week, my business made £1,180 from a customer without doing any work. All it took was for this particular customer to pay their invoices late.

I know that Late Payers are a constant worry for the majority of freelancers and small businesses. The majority of my own customers pay late. However, on the whole, my late payers are only 2 or 3 days late in making their payments – which I can live with.

But this one customer was over 80 days late in their payment, and the amount was large – very large. In fact, the original invoice was nearly £60,000 in value. As you can imagine, when the amount is so large, and with payment being so long overdue, it can lead to a lot of sleepless nights – will they pay at all? Will I have to take them to court? Will they eventually turn around with 1,000 reasons why they are not paying (delivery was not as they wanted, etc)? In short, would I ever see the money?

I had a signed contract – so was covered from that point of view. In the contract, it talked about my terms and conditions, which included my late payment penalties – so was covered there. And my online accounts system (the wonderful FreeAgent was regularly sending them chase notifications).

After the invoice was 30 days overdue, and after a lot of worry – I bit the bullet – and raised a late payment invoice for 30 days of interest (8% over the base rate – so maths = (((amount of invoice + 8.5%)/365 days) * 30 days) plus my £50 admin fee.

30 days after that, I raised another 30 days of interest and another late payment fee, and then a third late payment invoice. They now had four invoices outstanding (the original plus 3 late payment invoices)

After the third invoice, it did seem that I was wasting my time – I was calling them and was being given more and more complex reasons for the late payment (we have a new accounts system, the payment manager is on holiday, its in the next payment run) – I even started to research on Google which debt collection company would have the most success (and which would cost me the least).

And then, guess what…. they paid. There was no email or call or anything – the money just magically appeared in my company bank account. Not only did they pay the original invoice, but also the late payment invoices – so an extra £1,180 into my bank for no effort from me.

And you know what – that’s more money than I would have gained in interest in having it sit in a bank – so I am very happy.

We all suffer bad payers – but don’t give up. Chase, chase, and chase some more. When things get too much, threaten and then do it – raise that late payment invoice. Don’t put up with those late payers. And don’t wait until they pay to raise a late payment invoice – raise one a month – it acts as a reminder to pay the original invoice (and that you are serious).

As long as you have a signed contract and a clear set of terms, the law is on your side.

I checked it very thoroughly,” said the computer, “and that quite definitely is the answer. I think the problem, to be quite honest with you, is that you’ve never actually known what the question is.”
“But it was the Great Question! The Ultimate Question of Life, the Universe and Everything,” howled Loonquawl.
“Yes,” said Deep Thought with the air of one who suffers fools gladly, “but what actually is it?”
A slow stupefied silence crept over the men as they stared at the computer and then at each other.
“Well, you know, it’s just Everything … Everything …” offered Phouchg weakly.
“Exactly!” said Deep Thought. “So once you know what the question actually is, you’ll know what the answer means.

The above quotation is taken from the HitchHikers Guide to the Galaxy (the world famous book, radio show and film), and is the conversation that takes place after the computer declares the answer to the Ultimate Question to be… “42” (you need to read the book/watch the film for this to make sense).

But, what if the computer had got it wrong? What if the answer to Life, The Universe and Everything was in fact, 43, 44 or “eat more carrots?”. How do we ever know that any answer is the right answer? And does it really matter?

The problem with Numbers In Business
When working with my customers, most of the products I deliver are based around Business Intelligence. I provide tools for them to perform quick analysis by dragging selection criteria (in the form of column names) into windows, and selecting which information they want to report – the tools then crunch large amounts of data and produce answers in the form of tables, graphs and trend plots. Using such tools, they can quickly report on anything from yearly turnover, number of patients seen in a hospital, or breakdown of budget verses actual figures.

But what if they (or the system) gets the answer wrong?

One thing I always stress to my customers upon delivery and training is that with the power to produce data so quickly, it is critical they produce their reports in 3 different ways – or ask the same question 3 different ways. Only when all 3 answers are the same can they start to trust the results. And even then, if the question is wrong (the filter and selection criteria incorrect), the answer is not going to be the answer they are looking for.

This leads me onto the numbers in my own business, and in particular, a new project I am working on.

My Passive Income Project
In the last few weeks, I have started work on a passive income project. I have talked before about how my business is not scalable in any true sense (I provide a service, and the only way to generate more income is to clone or hire another me) – so I have been really keen to find a way of generating growth and income whilst I get on with my day job. I will be talking about this project and all the maths involved at the end of the year.

As part of this project, I wanted to make sure the numbers were sound. This project was going to be investing an awful lot of my company’s cash into the project, and I didn’t want anything that could be seen to be risky. If the project numbers did not stack up, then it was not going to work for me.

But here is the problem – how do I check the numbers? Yes, I had created a nice spreadsheet of the numbers (expenditure, income, taxes, etc) – but what if I was asking the wrong question. What if there was an error in my assumptions or understanding – the answer which I had calculated as being “go for it” could actually really be “stay away from this” – and I would not know until I was way over the point of no return.

Checking the Numbers
With the project reaching a critical ‘do or don’t do’ stage, I decided that I would take my own advice, and have the numbers checked.

My first port of call was my wife. Having her check the numbers made sense as she could run through the spreadsheet, check for errors in my calculations, and check she was also happy with the numbers. I asked her to use her own blank spreadsheet to make sure that we were getting the same result by approaching the numbers from two different directions.

Of course, her numbers were different from mine, but we sat down and compared the figures – spotted the reason for the differences and agreed that both sheets gave the correct answer depending on different points of view. The numbers were close enough to be insignificant, so we agreed to move onto more robust checking.

And for this, I paid money. I had my accountant check my numbers, had my Independent Financial Advisor check the same numbers, and also had my bank business manager check the numbers. Each charged me a small fee for checking – but the fees were not high compared to the reassurance it provided.

The only person who said there was an error was the accountant who confirmed that one aspect of my tax calculations was incorrect and adjusted my figures for me – luckily for me, the error actual improved the situation.

Who’s checking your answers
The point of this story is, our project is a GO! But only after I had four other people (including three professionals) double check my numbers. Yes, it cost me some money, but I can sleep better at night because of it.

In my freelance business life, I have seen time and time again people make mistakes on assumptions and calculations – only to be disappointed (or out of a job) when the numbers do not materialise. I have seen data analysts at customers sites produce reports in seconds and send them out as ‘the answer’ only to find that the original question was wrong, or the way that they turned this into a report was wrong.  I have also seen software developed and cloud services produced only to come to a sticky end when nobody purchased them (I have done this myself).

At the end of the day, if the answer is important, its worth double or triple checking both the answer and, maybe more importantly, the question.

I got professionals to check my question and answer. Who is checking yours?

A few months ago I talked about the different emails I use for chasing late payers.   Judging by the interest this post received, it seems that late payers are becoming more and more of a problem for freelancers and small business owners.

As regular readers will know, I am an advocate of using cloud based accounting software – and my choice for this type of service is FreeAgent.

As I received so much interest in the late payment email templates, and a few questions on how I set up automatic chasing of late payers, I thought I would today share how I set up Freeagent to do the escalation for me.

I am sure that many, if not all, of the other accounts systems out there have similar late payment escalation systems in place – so this will be just as relevant.

Setting up Late Payment Chase Escalation in FreeAgent
One of the things I love about freeagent is that in many aspects of the accounting process, you can set something up and forget about it.  This is equally true for chasing late payers as it is for setting up standing orders or salary payments.   In terms of setting up late payment chase emails, it’s just a matter of setting up the email templates, and letting FreeAgent get on with it.

Within the Freeagent system, under the main settings menu (at the top of the screen), there is an option of Invoices and Estimates, and under this, an option for Invoice Emails.   This option allows the definition of all kinds of email templates – initial invoice cover email, thank you (for payment) email, and of course late payment chasing emails.

When I initially started using FreeAgent, I just set up a single email reminder template which sent a chase email 3 days after the invoice was due, and then sent the same email every 3 days until payment was made.   This worked for a while, but if you got the same email over and over, would it persuade you to make payment?  So I made it more sophisticated and gained better results.

Using the template emails defined in my late payers rules, I set up 9 different late payment rules – 2 emails for each stage (in case the first one was missed).  For each stage of the chase process, I created a new chase email, and set the Reminder Rules for the days after payment is due to send the email.    I have found that sending an email every 3 or 4 days seems to work best.

For each stage, the subject of the email changes to reflect what is about to happen – a warning, about to raise charges, on stop, debt recovery etc.  The text of the email also changes as per my late payers email templates already discussed.

Note quite automatic
Now whilst this does all the late payment chasing for me, its note quite fully automatic.   I do have to raise late payment invoices (with charges and interest) now and again – and even if FreeAgent was able to do this, I would still prefer to do this by hand (using the FreeAgent invoice creation screen) just to remain in control.

To allow me to keep track of what I need to do next (raise a late payment charge, put them on stop or pass them to a debt recovery company), the 2nd email of each stage in the sequence is marked to be copied back to me.   That way, when the email arrives in my in tray, it acts as a trigger and reminder for my next action.

My sequence and dates of my chase emails in FreeAgent are then as follows: