Posts Tagged ‘assets’

Getting money out of your Freelance or Small Business and into your own pocket is a complex area, best left to your accountant. However, in principle, there are several ways to take money out:

1. PAYE payments. For this, its all above board, you get a pay cheque each month/week with another cheque going off to the Inland Revenue for the tax and NI.
2. Dividends, which are tax free payments on the company profits. Looks attractive, but if you have too large a dividend, then the Tax Man may come knocking looking at Tax evasion. My accountant mixes (1) and (2) to reduce tax payments through PAYE but keep me safe from investigations.
3. Assets. Here I am talking about assets which belong to the company but you can use. This falls into the areas such as computers, cars etc. However, areas such as Cars are heavily taxable, and over say 3 years, you pay more tax on the cost than if you paid PAYE payments.
4. Expenses. Ahh – now this is my favourite area to dabble in….

Taking away more from your business account, in the form of expenses, is a very nice thing.  The advantages of this kind of movement is that it saves Tax both in terms of PAYE tax, and also Corporation tax when it comes to year end (better to have the money in your own bank account than the companies).

Lets take an example… Imagine you spend £2,000 in one year on business car travel. If the (your) company reimburses this, then the company saves 20% *£2000 = £400 in corporation tax.   If the company would have paid that £2,000 to you as a higher-rate tax payer as a salary, you would paid £2000 * 40% = £800 income tax.  The £2000 taken as an expense, well that is without any form of tax.

For expenses, to keep your accountant happy, you will need receipts, which of course means that they are at cost (no money for you). However, there is the wonder area of mileage, which you can reclaim at 40p per mile (upto first 10,000 miles) without paying tax. And that 40p adds up. A trip from say London to Manchester and back is just over 300 miles, which works out at £120. Do a few of those a month, and you can soon rack up a £1000 extra tax free. But the best thing about the mileage, is that as long as you don’t go silly, a business trip for say a meeting, will require no need for proof. Just don’t put down a trip where you also claim another expense elsewhere just in case.

Clearly you have to be careful on some items that cannot be claimed as expenses, or those that carry a personal TAX implication.   Such items include property, investments, cars, clothes (it has to be a group uniform or branded clothes to be allowed) and health insurance.  But, some of the expenses which are worth considering may be:

• Company pension contributions (the best form of expense you can have)
• Computers
• Communication devices – mobile phones, pagers, fax machines etc
• Cameras (you need them for the art work in your brochures, web sites, etc)
• Use of your home office (a % of your home bills including rent, mortgage, gas, electricity, water and council tax)
• Equipment – desks, chairs, printers, pens, pencils, paper, toner, etc etc
• Internet connection, mobile phone bills, and other communication costs
• Memberships to trade organisations
• Printing (hand outs, brochures, etc)
• Postage costs including stamps, postage containers, packing etc
• Home Office supplies – teas, coffees, milk, sugar, toilet roll, cleaning equipment
• Books, magazines, software, subscriptions to services, web hosting etc
• Accommodation when working away including meals

The best source of information will always be your accountant, but other reading material from trained accounts can be found here.

During a recent Business strategy meeting I attended, one of the other participants (thank you Paul) recommended a book to us – the 4 hour work week by Timothy Ferriss.   Based on how this book was described, ordering a copy from Amazon was the first thing I did when I returned back to my desk.

One of my strong beliefs is the growth of a freelancing or contracting IT business through the creation of revenue and wealth generating assets that do not rely on you being around (after all, there is only so much work you can do in a day).    This book is all about the generation and the use of such assets for a small business.

The book is actually separated into two halves.  In the first half, the author provides a step by step action plan for eliminating non-essential work, outsourcing a lot of the remaining work, and giving a detailed blueprint for designing, test-running and developing one or more ‘automated’ on-line businesses. The author describes the use of products, services or assets which can be performed by outsourced companies, hence it is scaleable and allows the owner to keep only a very light hand on the tiller, through weekly or monthly reporting by the outsourcers.   The ideas in the book are excellent and have added more fuel to my asset generating fire.

The second part of the book is focused on what you should do with all the free time that you have managed to create and ideas for filling the gaps in a working day.  Whilst this section was less relevant to me (more free time equals more time to work to generate more cash), it does have some useful aspects regarding time management.

If you are looking for ideas for generating more wealth and money, allowing you more freedom either for more free time, or simply allowing you to build other areas of your business whilst generating wealth with only a minimum of input of your time, this book is RECOMMENDED.

Let me run some names past you……  Hoover – what do you think of?  Cleaning the floor?  What about Frisbee?  Are you thinking about playing catch in the park?  How about a nice Coke?  Ready for a drink?  Kleenex?  What do you think about?  If I was to ask you to Google it – what would you do?

All of these are classic examples of products which are or were brand leaders, which we now view as the name for the generic product – regardless of the manufacturer.   There are lots of Hoovers, even if they are manufactured by Dyson or Panasonic.  A pepsi is viewed as a Coke.  You can google things in Microsoft Bling, and Frisbee is no longer making Frisbees – a company in china is.

It’s important to be first – first is where the money is, where the recognition is, and where the returns of more sales over time are.  When the original hoover came out, there was no competition, so everybody bought their hoover from… Hoover.

Now what has this to do with the iPhone App store?  Well, when the app store was first introduced, lots of people reported making thousands and even millions from applications that people downloaded and paid for.  Why?  Well the app store was new, and the content was limited.  But now, the app store has thousands upon thousands of applications covering every possible handheld application use.  Think of a possible use, and there will be an application to cover it – and most of them are now free.

I know 5 or 6 people who are still gazing into the stars, and dreaming of the day when they place their iPhone app on the store, and it starts generating money for them.  Yes, it may happen, but the people who got there first have already got the downloads, so their apps appear at the top of the list, and the new products are right at the bottom, not selling or at least not selling sufficient numbers to cover the cost of the initial development.  The story is going to be the same with the iPAD – anybody thinking they will be developing the killer money making life changing app is going to be disappointed.

Being 1^st with a new product, service or benefit is so important.  But trying to do it via the iPhone app store is not the way to go.

Have you seen Jurassic Park? If so, you might remember Dr. Malcolm’s (Jeff Goldblum) diatribe about the dangers of doing something just because you can:

I’ll tell you the problem with the scientific power that you’re using here: it didn’t require any discipline to attain it. You read what others had done and you took the next step. You didn’t earn the knowledge for yourselves, so you don’t take any responsibility for it. You stood on the shoulders of geniuses to accomplish something as fast as you could and before you even knew what you had you patented it and packaged it and slapped it on a plastic lunchbox

Well, whilst this is all bad news for the characters in a film (that are about to be turned into Dino-snacks), for business, it works.   Or at least, it can work if done right.

Big companies are forever reinventing something that another company had already done, and as a result, they take the lead and the original product or company disappears, never to be seen again.  There are many examples; before Microsoft Word there was WordPerfect, and before WordPerfect there was Wordstar.   Before the iPhone there was a host of other graphical phones, before these were the text only Nokias, and before these were the 1^st mobiles – the ‘bricks’.   Before the Dyson cyclone vacuum cleaner was the bag hoover, and before this was a hand pump suction cleaner, and before this – well there was just a lot of dirt.

The point of all of this is that if you want to use this concept to grow your business, you can use what others have done, and use this to your advantage.   But beware.  I am not talking about creating a better version of Microsoft Word or creating a better version of the Ford Mondeo – reinventing major products without major innervations and improvement is something best left to multi-billions pound companies like Google or Toyota.

What I am talking about is the creation of something new, something that is yours, but using what others have done to allow the fastest and best development at no cost to you.   And the best source of innervations for anybody in the IT field is open source.   There are many hundreds of software projects developed under the open source licence, allowing anybody to use the products for their own purposes, some with very little licence restrictions (just acknowledge somewhere you have used the open source product), and some with no licence restriction at all.

Using the spirit of ‘create an asset’ which I have discussed in a previous post, I have recently created my own web 2.0 application.   It may take off, it may generate a little income, or it may fizzle to nothing and die.  But this asset cost me just 8 hours of my time, no other purchases were required, and all was created by taking open source items and simply bolting them all together (with a little product development and integration).   I used open source forums, content systems, database authoring, database (MYSQL) and even a royalty free web design – all bolted together to create a fairly slick product which would have taken weeks of coding if I started from scratch, and thousands of pounds of investment.

So what’s stopping you creating your own application based on the work done by others?

We live in an information world.  Customers and consumers have all the information they need about you at the touch of a button.  On their laptops, desktops and mobile devices, your on-line profile is there for all to see.   Most employers now having the ‘goggling’ of a candidate part of the selection process, and most customers will Google your product or service before an order is raised.

It’s therefore important to have a clean internet profile, or at least as clean as you can.  It’s is far easier to have something appear on the web than it is to have it removed.  Sometimes, once information is out there, it’s out there for good.

Mistakes can be costly, both in too much business, and sometimes no business.  There have been countless examples where a sales website has mistakenly placed an item for 10% of its real sale value because somebody put a decimal point in the wrong place, only to spot the mistake when orders flood in, but too late to stop physical items being despatched at the 90% discounted rate.

A classic example where the information will push customers away is the way that Waterstones markets eBooks.   eBooks are great – they are good for the environment, an eBook reader can hold hundreds of ebooks on a single slim device, and in most countries, eBooks are far cheaper than real books.

But Waterstones, one of the UK’s biggest book stores and the first mainstream shop to sell eBooks, has got it badly wrong on the way that it sells eBooks.   Doing a search on any book on the Waterstones web site produces search results with two or 3 different formats of the same book.   Take a look at these two examples:

The top entry is for the eBook and the bottom is for the full, heavy hardback version.  But wait, the virtual eBook is actually more expensive than the physical book.  Even though the real book carries storage costs, material costs, production costs, shelf and stocking costs, the virtual no cost book costs more – and the Waterstones web site makes this very clear.  I bet the waterstones chief executives are scratching their heads wondering why eBooks are not selling on their web site.

If you have never read the book Rich Dad, Poor Dad by Robert Kiyosaki, then let me summarise the book in 6 simple words : you need assets that generate money.  Don’t let me stop you reading the book – it’s a fairly interesting read with some useful ideas, and I can recommend it.

Regardless of what you think of Robert Kiyosaki’s motives or style (and there are as many sceptics to his philosophies as there are followers), the idea of having money generating assets is a powerful and compelling argument.

 When you run a service type company, there are initially only two assets that you own, that you have some control over, but also limit you.  One is time, and the other is you.   You can get an order to carry out some work, some service, but you can generally only perform one service at any one time.  You are limited but how many hours you can work in a day (until your partner gets moody about never seeing you) and there is only one of you, so you can’t work on 3 or 4 projects at the same time.  After a while, this really does start to limit the growth of your business.

 So that’s where the money generating assets come in.  In order to break out of the time/you restriction, you need assets that work either whilst you are working on other things, or work for you whilst you are asleep.   It’s the only way to generate additional revenue once your time is maxed out, and it’s the only way to obtain economies of scale.

 Assets can come in various forms.  They can be:

• People (staff who work for you)
• Products that you can sell
• Revenue generating property (as suggested by Robert Kiyosaki)
• Advertising (through web sites, etc)
• Payments extending services already provided (maintenance charges, interest, etc)
• Financial assets (stocks, shares etc). 

 Of course the key is finding which money generating asset fits with your business, your style of working, and will generate the money you need.   Maybe Robert Kiyosaki’s book can help you figure that one out.