Hixsons - business, finance, tax

The secrets of pricing for profit - Part 1

2012-01-25T15:54:00.003Z

This first part of a publication on maximising prices and profits is about setting your prices. The whole publication is available free just by sending an email to office@hixsons.co.uk. Include your name and address please, and what you do, so we can see what else we have you might benefit from.

Economists claim that prices are set by markets. But they are wrong.

Prices are set by people running businesses. People like you. And they are among the most important decisions you will ever make. Get them right and you could be on the road to fame and fortune. But get them wrong and your business will be doomed to failure.

Why so many businesses get it wrong

To prove that setting your prices is one of the most important things you will ever do, let’s start by looking at an example.

Example:

Last month WidgetCo made £500 profit selling 1,000 Widgets.


Sales	(1,000 Widgets at £10 each)	10,000
Deduct: cost of sales	(1,000 Widget at £7 each)	(7,000 )
Gross profit		3,000
Deduct: fixed overheads		(2,500 )
Profit		£ 500 profit

WidgetCo has commissioned some market research, which suggests that they have two options:

Option A - They could increase their sales volume by 20 per cent if they reduced prices by 10 per cent to £9, or

Option B - They could put up their prices by 10 per cent to £11, but then would lose 20 per cent of their sales volume.

When we ask them what WidgetCo should do, most entrepreneurs have no hesitation in saying something like: "Go for option A. It is always worth selling more, and anyway, WidgetCo gains more in volume than it loses in price, so it must be profitable".

Are they right? Unfortunately not. And it’s precisely because so many people get this question wrong that their businesses get into very real trouble.

So let’s continue with our example by seeing what WidgetCo’s profits will be next month under each of the two options.

Next Month's Profit and Loss Account – Option A reduce price
		£
Sales	(1,200 Widgets at £9 each)	10,800
Deduct: cost of sales	(1,200 Widget at £7 each)	(8,400)
Gross profit		2,400
Deduct: fixed overheads		(2,500)
Loss		£ (100) loss

Next Month's Profit and Loss Account – Option B increase price
		£
Sales	(800 Widgets at £11 each)	8,800
Deduct: cost of sales	(800 Widget at £7 each)	(5,600)
Gross profit		3,200
Deduct: fixed overheads		(2,500)
Profit		£ 700 profit

As you can see, under option A (i.e. the price cut) WidgetCo makes a loss and is heading for disaster. It is actually worse off than it was before the price cut. And it is much worse off than it would have been if it had increased its prices.

There is nothing very special or unusual about this example. It simply illustrates a fundamental point that is all too often overlooked: stimulating sales by cutting prices may boost your top line turnover, but it can just as easily devastate your bottom line profits.

Like many other companies, WidgetCo will not only be able to generate bigger profits by increasing its prices. But by reducing its sales it will also need less cash to finance debtors and stocks, and by eliminating customers at the cheaper end of the spectrum, it will probably reduce the amount of money it loses as bad debts.

As a result, when it increases it prices WidgetCo becomes a leaner, fitter business, providing a higher rate of return using less working capital. In contrast, when it cuts prices under Option A it becomes a lame duck. Choosing the right pricing strategy can be the difference between success and failure. Is your business an Option A or an Option B company?

There may, of course, be times when you can prove that lower prices will lead to higher profits. For example, in the case of WidgetCo, Option A's 10 per cent price cut could have been more profitable than Option B's 10 per cent price rise, but only if it leads to at least an 80 per cent increase in the number of Widgets sold! Ask yourself, is that likely?

All of this illustrates the general rule very nicely: if you can prove that the demand for your products is very sensitive to changes in price, then cutting your prices may increase your profits.

But never, never, never simply accept the naïve equation much loved by salesmen that:

Lower prices = Higher sales = Higher profits.

The truth is that convenience, habit, concerns over quality, and the "better the devil you know than the one you don't know" syndrome all make many customers reluctant to switch allegiances for the sake of a few pence or per cent in price. If you don’t believe it, ask yourself a few questions. How often do you switch your allegiances from a favourite supermarket, garden centre, pub or restaurant just because a new one has opened up offering slightly lower prices? How often do you even realise that they do offer lower prices? How often are you prepared to pay just that little bit more for a product or service that you know, understand and are happy with?

So if you want simple equations, try these two instead:

Lower prices = Lower profits (until proven otherwise)

Higher prices = Higher profits (until proven otherwise)

Next - Pricing for maximum profit

IS THERE ANY GOOD NEWS?

2011-11-30T17:46:00.001Z

With the Chancellor’s AutumnStatement predicting more borrowing and less growth, the Eurozone crisisdragging on and talk of a “double dip” recession, one starts to wonder: “whereis the good news?!”

Well there IS good news, but YOU haveto make it happen!

Our most successful business clients have one traitin common: they understand that they cannot control global economic events,they can only control events local and relevant to them. But how do you remainsuccessful locally?

Firstly, it takes time for global economic eventsto filter down to local markets. When an event happens there is always acertain amount of time to alter your business strategy. If you haven’t settargets then you can get carried along like a paper cup on the ocean, which canlead to you as a business owner feeling out of control. This is what happenswithout targets and a strategy for long term survival, so please talk to usabout your goals for the future.

Secondly, successful business people understand theneed to be flexible with the way they deal with suppliers, employees andcustomers. Brainstorm with your teamabout how you can be more efficient in your daily operations and consider howyou can deal with your customer’s needs more effectively. Then set an actionplan for change. Our most successful clients do this regularly and are preparedto change their methodologies – in essence, they are flexible in the way theyoperate. Remember to focus on what you can change and don’t worry about whatyou can’t! We work with them regularly to ensure they are on top of their strategies and in front of the action, wherever it is.

There is a well-known principle called the “ParatoPrinciple”, which is also known as the 80:20 rule:

Ø 80% of sales come from 20% of customers;

Ø 80% of complaints come from 20% of customers;

Ø 80% of your profits come from 20% of the time youspend;

Ø 80% of your sales come from 20% of your products;

Ø 80% of your sales are made by 20% of your salesstaff

Therefore focus on the most effective areas andeliminate, ignore, automate, delegate or re-training the rest.

Set targets,focus on what you can change, ignore the rest and you will create your own goodnews!

£1000 to help you grow

2011-09-19T19:17:00.000+01:00

Grants from the Government are available tohelp you sort out your strategy, get more profitable, streamline your systemsand much more.

You can get up to £1000 quite easily andquickly for short term projects that can really make a difference to yourbusiness.

The signs are such that we are now expectinga downturn in the economy in 2012, so it’s wise to get everything working atits optimum level now to protect your business as much as possible.

We have helped clients with:

Strategy
Growth
Profitability
Cash flow
Systems streamlining

We’ve also used the same techniques tocreate a succession plan to hand over to the next generation, changed a company’s manufacturing base and createdmore sales focus, groomed a business for eventual sale, and found better ways of paying the owners so that the company’s cash flow isimproved.

This grant will be available potentially untilMarch 2012, but it has to be used by then, so apply soon to ensure your businessgets the help it needs.

Give me a call to discuss it on 01202520010 or email nick@hixsons.co.uk

The 7 P's of marketing services

2011-09-06T09:17:00.002+01:00

The 4Ps’s of marketing plus People, Process and Physical Evidence- these all relate to the marketing mix of a service.

People

If you are offering a service, you need the appropriate staff to deliver it. Customers are not just buying a product, they are buying into an experience. Proper recruitment, proper training, and imbuing the staff with a customer service ethos are essential if you want a competitive advantage. Customers make judgements on the service based on the people they interact with. Good products can be assumed to be bad if the customer service is bad. Treat people as you would want to be treated. Walk the customer journey (see Process below as well), to ensure that your customers get the right impression right through the service cycle.

Process

The systems and processes that deliver the service. If you go into MacDonald’s and get your meal in 2 minutes, someone has designed exactly how that has to happen – every time. Someone has thought out what the customers’ experience should be from entering the premises to leaving them – every step, every possible interaction. Work out what enables you to deliver your service effectively every time, so your customer is delighted. Walk the customer journey! Write it down - teach your people, so that they (and new employees) do it the right way every time. That way it gets to develop your brand.

Physical evidence

What is the service being delivered? This element enables the customer to make judgements abut your business. Do you expect a restaurant to have a clean, welcoming, friendly environment? Do you know the old Coffee Stain Survey results? On an airline’s drop down tables, if there was a coffee stain, travellers assumed that if the airline couldn’t clean the tables, they wouldn’t take care of the engines! Make sure that whatever your customers take away reminds them favourably about your service.

And download my e-book Customer Service – Why Bother? Free at www.hixsons.co.uk

Marketing - the last of the 4P's

2011-08-20T10:46:00.000+01:00

Here’s the last of the 4 P’s of marketing – PROMOTION

It all means nothing if the benefit of your product hasn’t been clearly communicated to your target market. This might be a mix of:

Public relations

Advertising

Sales promotion – a short term fix to increase sales, maybe with money off coupons

Personal selling

Direct mail

Internet marketing

You will need a well thought out message strategy. What message are you trying to convey and to whom? How will you deliver the message? Will it be through some branding, design or logos? The message should emphasise the benefit of the product and help the business in positioning the product.

Will you use a push or pull strategy perhaps? A push strategy is where the manufacturer concentrates marketing effort on retailers to convince them to stock the product. A pull strategy is where the business instead concentrates on consumers to create demand. Or some of both?

An old favourite – AIDA. It’s a communication model to aid selling. It’s an acronym for Attention, Interest, Desire, Action. When you are new in the market with your product, you first need Attention. Once you’ve done that how can you hold Interest, through stating benefits etc? Then how do you make your product Desirable? A demonstration, perhaps? The lastly, purchase Action – make it easy to purchase.

As your products move through the 4 stages of a product life cycle, you will need to promote them differently to ensure the best success and longest life of each product.

Introduction – new product, so you need to inform the target customers. You may need quite a bit of effort, with Push and Pull strategies at this crucial phase.

Growth – as the product becomes accepted, you need to work on a strategy of increasing brand awareness to encourage loyalty.

Maturity – brings increased competition, so the business needs to persuade customers to buy theirs and not a rival. Display differential advantage to the target audience to inform them of benefits.

Decline – use a strategy of reminding the customers of the product to slow down the inevitable. You may change the price to increase sales.

You will also want to ensure that you have different products at different stages of their product life cycles, to ensure you don’t have a sudden slump in sales, or cannot meet demand if there is a big increase.

There you are- the 4 P’s of marketing, in as short a form as I can manage it. Our strategy sessions focus a lot on marketing and the pricing conundrum. You just have to ask.

Marketing - the 3rd of the 4P's

2011-08-20T10:41:00.000+01:00

Here’s the third P of the 4 P’s of marketing. It’s

PLACE

It means how you will distribute the product or service you have, not where you will base yourself. You must get the product to the user at the right place and at the right time – the right place and time for the user, that is. This means effective distribution or you will not meet your marketing objectives. If the business underestimates demand and customers cannot buy from you, then obviously profits will go down, but more importantly, reputation will be lost as customers will know not to try and buy from you again.

There are two types of distribution channel available – indirect and direct. Indirect means distributing your product via a wholesaler who may sell to a retailer then on to a customer. Direct means from you straight to customer. The direct channel gives you complete control over the product, and usually means better margins (you are not giving anything away to wholesalers or retailers), but your ability to sell in volume is limited.

There are three common distribution strategies available.

Intensive distribution – to distribute a low priced or impulse purchase like chocolates

Exclusive distribution – to a single outlet. Usually for high priced products and needs an intermediary to add detail into the selling process.

Selective distribution – a small number of retailers are chosen, and is commonly used to distribute items such as computers or household appliances, where customers shop around and manufacturers want a large geographical spread.

If a business decides on one of the later two strategies, then it should choose intermediaries who are experienced in the industry and have credibility amongst the target customers.

Marketing - the 2nd of the 4P's

2011-07-30T16:09:00.002+01:00

PRICE is the second P of the 4 P’s of marketing

This is one of the most important elements, as it is the only element that generates turnover. The other 3 P’s are costs – costs to produce, cost to distribute and costs to promote. Your price (or prices) must support all these other elements. It is difficult to get right, as it must reflect the supply and demand relationship. Pricing too high or too low can lead to a loss of sales. But – you can’t just price low to make sure you get every sale, if you can’t fulfil them properly. Pricing too low is a common mistake of the small business! I’ve lost count of the number of times I’ve told a business they need to put their process up.

Pricing needs to take account of:

Fixed and variable costs

Competition

Your objectives

Proposed strategies for positioning your products

Target customers and their willingness to pay

There are various pricing strategies that can be adopted:

Penetration pricing – low price to increase market share. Then increase the price later.

Skimming pricing – initial high price, the slowly lowers it to make the product more widely available.

Competition pricing – price matching or lower than competitors to gain market share.

Price by product line – different products have different price points. Similar products with different features enables a business to maximise turnover and profits

Bundle pricing – groups of products are priced at less than the sum of the individuals.

Psychological pricing – charging 99p instead of £1, for example.

Premium pricing – to show the exclusiveness of the product or service

Optional pricing – the business sells optional extras to maximise turnover and profits.

Cost based pricing – this is cost plus mark-up, which can work, especially where costs change often, but it’s a dangerous policy, as most businesses underestimate their costs.

The 3rd and 4th P's are Place and Promotion, and will be ehre soon. Then the extra 3P's of marketing services.

Marketing - the 4 P’s

2011-07-19T13:31:00.001+01:00

Little understood by small businesses, mainly avoided if possible (that’s selling isn’t it? Ugh! I can’t sell..), but badly needed if you want to stay in business, and easier than you think!

Let’s start with your customers. There’s nothing like asking existing or potential customers what they want, then giving it to them. It’s a lot more certain than assuming you know better than your customers, who will tell you differently (and expensively). Customers want to be asked – they want to be involved, cared about, and listened to.

So a short introduction to some basic marketing ideas, starting with the 4 P’s. You may know all this, in which case, it’s short refresher, or maybe you can show it your colleagues, who may not know it. Everyone in a small business is involved in some way or other in marketing, so they all need to buy in to this.

What are the 4 P’s? A series of tools to help you achieve the marketing mix you want and achieve your objectives. It ALL starts with the market – customers. No customers = no business, so all your planning should start here.

Each P is a separate blog. The 4 P’s deal with products – for services you need another 3 P’s. Later! Although it should be apparent you need them all, as to some extent you are providing a service with the product.

Here’s the first P

PRODUCT

Who is the product aimed at?

What benefits will the customer expect?

How do you plan to position the product within the market?

What advantage will the product offer over its competitors?

Remember – marketing is about providing changing benefits to the changing needs of the customer – not just providing products or services.

Your decision about your product will include:

Design – will the design be the selling point, like the iPad?

Quality – this has to be consistent with other parts of the marketing mix. A premium price needs to have a premium product. But a cheap product needs a quality and cost that fits with the price.

Features – what will you add to increase the benefit to your market? Will you use a different pricing policy to match these additional features?

Branding – the value of a brand is huge, as they have the power of instant sales, and they convey a message of confidence and reliability.

“If things seem under control, you’re just not going fast enough” – Mario Andretti

2011-05-20T11:00:00.000+01:00

Well, he was a racing driver. And it’s an interesting idea, when applied to success and failure. I recently attended a seminar on Valuing Failure, which is part of the RSA’s Failure initiative. This seeks to find what we can learn from failure – such an emotive word – and how we can use failure as a driver for success.

If we just play it safe, we will stay in our comfort zone, and succeed at what we know. Will that enable us, as business people (or just people) to survive long term? I suggest not, as change, being inevitable, will impact on our cosy existence. Competitors will nibble away at our market share, economic factors will change, and if we stay doing what we know, our businesses will gradually wither and die.

To stop that we have to do something new – something we don’t know, or don’t know enough. This invites failure, which, if managed properly, should involve learning, adapting and ultimately succeeding in this new way.

Notice I said, “if managed properly”, which seems often not to be true. So often insufficient time and resource is put into discovering what boundaries should be put into place, what information needs to be assembled, and what plans need to be made before activity is started. And then failure often happens because that new activity was not managed to allow failure but avoid catastrophe – something which I try and build into any client strategy that we facilitate. The idea is that we can push through the failure, by learning, adapting and building – to a new bigger success zone. Danish physicist Neils Bohr defined as expert as “ a person who has made all the mistakes that can be made in a very narrow field”, and that has an insight into managing new things – make them very narrowly defined, so they cannot impact on the main business.

We may need to push hard and persistently, and sometimes we have to realise that there is no way through – or at least, not in that direction. “If at first you don’t succeed, try, try again. Then quit. There’s no point in being a damn fool about it!” WC Fields, this time. But if you do quit, just quit at that particular activity, don’t stop trying to innovate altogether. Just change direction.

However you think about it, surely there’s a learning point here that regularly exploring the boundaries of where you are, testing them hard, pushing through where you can, expands the capability of a firm to survive and grow (and the people running those firms too). It should produce a habit of Explore – Fail – Innovate – Consolidate – Explore – Fail – Innovate - etc. This produces an entrepreneurial mindset, and I think serial entrepreneurs exhibit these characteristics strongly. Innovation and entrepreneurship are ways of thinking that can be learnt just like any other. This is one insight into how that is done.

Innovators expect failure – it is natural and inevitable at some point in everyone’s life anyway. Innovators view failure as opportunity, learning and information. It is unhelpful for us as individuals and business people to stigmatise failure and ourselves as failures, if that prevents us from growing our businesses and ourselves. We simply need better strategies so we avoid catastrophes but allow failure – and its associated benefits.

How to get rich? Quietly!

2011-03-25T16:15:00.001Z

Cast your mind back to when you were 25, earnings £250 a week, then on to 35 earning £500 a week. Maybe when you got to 45 you were earning £500 a day. Maybe not. But whatever it was, how much did you have left?

Probably about the same as now – not much. Because your expenses grew with your income. You needed that new car, better house, more clothes, holidays,..every rise in earnings came with a price tag. So that’s why lots of people with high earnings have no money. They aren’t rich – they just have high earnings. Which means that they have to earn at the level to stay still – stuck on the hamster wheel forever.

Let’s look at a couple, both working and earning well. Joint income of, let’s say, £90,000. If they were living off investments – 3% return? That’s capital of £3 million – invested, excluding the value of their house, which produces nothing. Hardly a lavish lifestyle, but to put £3m together needs a bit of luck and a following wind.

How to get rich then? Thanks to Bill Bonner and the Daily Reckoning (www.morefrombill.com) – he has the concept of financial escape velocity. This describes what has to happen to build up serious money. You might get lucky – you may live just where a developer needs to build and you get a ransom price or you might get some other lucky break, but it’s unlikely.

Or you might use compound interest. Sorry – it’s not an easy or quick solution, but it does work. Make a small investment, add to it, and keep doing it. Whatever it earns you reinvest in it. Compounding does the rest, over time. Later you may notice that your wealth has increased more than you thought – more than your expenses. Compounding is the first little trick.

Here’s the second. Don’t tell your family! Not because you don’t want to share it because you don’t trust them. Don’t tell them because you do trust them – to spend it. Don’t let a rise in your earnings attract a rise in their spending.

Compounding works in business too. I’m a firm believer in companies paying corporation tax. Not too much though! For two reasons – one is that then there will be some after tax reserves left in the company for the bad times, which stops the company going out of business, and secondly (you guessed) because of the benefits of compounding. If you take all the company’s earnings out, the company is at risk, and it won’t grow so fast. Let it grow and one day, you will find you’ve got to the point where your earnings are growing faster than your spending. Just don’t tell anybody.

Don’t worry about me knowing – I will already know, because that’s what we do!

HMRC business record checks

2011-02-18T10:04:00.001Z

On 17 December 2010 HMRC announced their intention to roll out a programme of Business Record Checks in the second half of 2011. At present they are consulting with professional organisations regarding the scope of their enquiries. This consultation will be completed and the results published by 31 March 2011.

If your business is selected HMRC staff will visit your premises and ask for access to all your business records. If they feel that there is a significant failure to keep proper records penalties may be charged and additional tax assessments raised.

HM Revenue & Customs are going to use existing legislation to check business records in up to 50,000 cases annually. Businesses targeted will have 250 employees or less and turnover below 50m Euros. (At present exchange rates just over £40m). Checks will begin in the second half of 2011 and HMRC will impose penalties for significant record keeping failures.

Once HMRC are aware that your record keeping is defective this will no doubt trigger visits from a number of their departments. You may get additional PAYE/NIC or VAT audit checks for instance.

Wwe’ve got a another free diagnostic tool on our website, just to check if your records are likely to be OK. It’s at www.hixsons.co.uk. It only takes a few minutes for a lot of peace of mind.

Clearly this is not an issue to ignore. Are your records in shape? Will they pass an inspection? Yet again we have a situation where smaller businesses are faced with additional pressures from the taxman. Unfortunately the threat of a visit is unlikely to go away. Be prepared!

… Different customers value things differently.

2011-01-26T13:51:00.007Z

We all value things differently. We all have a different perception of the value of any product or service. So we all have a different maximum amount we are willing to pay for a particular product or service. It’s our personal judgement call – and it’s entirely subjective. “So what?” you might be thinking. Well, this seemingly tiny observation has a profound implication. You see, it means that whatever price you are currently charging, that price is WRONG!

Is that a big enough implication for you? Actually, I probably need to clarify that statement that your price is wrong. Let me be more precise. If you have a single price for your product, then that single price is WRONG… no matter what that single price actually is.

You see, having only a single price causes you to lose out in two different ways....
- For some customers that price is too high – so they don’t buy, and you lose them as a customer.
- And for other customers that price is too low – so you end up charging them less (and earning less profit) than they are willing to pay. Which means you lose again.

Economists call the amount by which you lose in this second scenario the “Consumer surplus”. So one of the keys to dramatically improving your profits is to claw back some of this consumer surplus by charging different customers different prices.

Let’s now look at the maths.

EXAMPLE

Imagine that you sell widgets that cost you £1 each and for which there are three potential customers: A, B and C.

- Customer A is willing to pay £4
- Customer B is willing to pay £3 and
- Customer C is willing to pay £2.

If you set a single price at £2, the all three customers will gladly pay you £2. So you’ll make total sales of £6 and profits of £3.

If you set a single price at £3, then Customer C won’t buy. But the other two will gladly pay you £3 each. So you’ll make total sales of £6 and total profits of £4.

If you set a single price at £4, then only Customer A will buy. So your total sales will be £4 and your total profits will be £3.

The MAGIC PRICE is the price at which you make the most profits. So in this example the MAGIC PRICE is £3 – since at that price you make £4 in profits – which is 33% higher than at any other price.

Now £3 is the MAGIC PRICE… because there is no other single price at which you can make higher profits. But we also know that: Customer A is willing to pay £4, Customer B is willing to pay £3 and Customer C is willing to pay £2.

So, if instead of charging those three customers all the SAME prices, we charge them the full price they are willing to pay, then our total profits will be £6. Customer A will pay £4, Customer B £3 and Customer C £2, so total sales are £9, with costs of £3. Which is half as much again as the £4 profits we made at the magic price.

Now it’s vital to recognise that there is nothing fishy or special about the numbers in our example. YES, I've kept the numbers as simple as possible. And YES, the real world is much more complicated.

But those complications do nothing to alter the fact that if you can find a way to charge different customers different prices – so that they each pay what they are willing to pay – then you will ALWAYS make more profits than you do by using any single price... even if that single price is your magic price.

In our example we made 50% more profits by switching from the magic price to charging each customer the full price they were willing to pay. In your business the impact could be more or less than 50%. But there WILL be an impact. Charging different customers different prices WILL increase your profits… and probably by a lot!

Economists call this “price discrimination” – but we prefer the Plain English description of charging different customers different prices, since that’s what it actually involves.

But how do you actually do it? Because it actually dies work, and it's not illegal, or immoral (maybe fattening)

Well, the key is being much more creative about pricing.

In future blogs) we’ll look at:

- exactly how you create different versions of your products and services,
- how you price those different versions,
- how you present (and explain) them to your customers, and vitally important,
- the order in which you present them to your customers.

New Year, old you?

2011-01-03T08:43:00.002Z

“There’s no time!”

Well, you’ve got all there is. Yes, all of it. So if you haven’t got time, whose fault is it?

So often I’m at a client, trying to resolve some issue, and this is the reason it can’t be done. “There’s no time”. All these other things to do. No time to even stop to think if these things need to b done..so no one knows they they should be doing these things or not. No time to decide. Too busy doing exactly what they did yesterday, and the day before, and moaning they’ve no time!

Here’s a simple trick I use all the time. I wrote a small book a couple of years ago – Conversations for a Thoughtful Life – to my kids. It includes this little homily.

“Cut the crud

We live in an age of information overload. Added to that, we over think and worry, and find it difficult to sort out what is important from what is not. There are more and more demands upon our time and our thoughts. This is no doubt only going to increase.

What to do? My method is to be as lazy as possible, which will perhaps appeal to you. There’s no point in being a busy fool. You need to be effective rather than efficient. Also the only person's problems you want to deal with are yours. You don’t want half the world jumping on you, with all their issues, which they are sure (!) will be better dealt with by you. After all, you're only responsible for you, not everybody else you might come into contact with during the day.

So here's my simple little visualisation to tidy all this up in your mind. I simply imagine three big pigeonholes -- only three. In the first one are things that I have to do, of which there are only a few and there is quite a lot of space left. In the middle one are things that I want to do. This has a few more things in it, but there's still a lot of space left. And in the last pigeonhole is crud. This is full to overflowing -- it's impossible to cram another piece of paper in it. You know - you’ve been trying to cram more in all these years!

When something else is presented to me that apparently I have to do -- I simply measure it against the three pigeonholes. Do I have to do it? Do I want to do it? Or is it crud? And if it is crud -- which most of it is -- I simply don't do it. I've got enough crud to deal with already. Note the elegance of that last bit -- I'm not postponing dealing with this -- I'm not ever going to do it. If it's crud I don't need to do it. Don't confuse that with things that you will do at some point. You won't. It's crud. Remember? So why would you want to do it ever?

Liberating isn't it? And also quite a good filter for all the things which other people wish upon you. Things which are really their responsibility -- not yours. You've got enough of your own crud - remember?”

It works every time. It clears your mind so you’ve got the time to make small changes that make a big difference. Because those small changes get you even more time, so then you can think, really think, about what you want and need for your business to succeed. And then implement it. It’s what we do. Help clients get the time, do the plan, make the changes.

Here’s another small story to finish with, to help you with your personal time, and what other people may value about you.

Charles Francis Adams was Ambassador to Great Britain during the time of Abraham Lincoln’s presidency. He was something of a workaholic and rarely took the time to do anything with his son as a child.

However he did take time to write in his diary every day. It so happened that his son kept a diary too. After his father died, the son found the diary. The son recalled a day when, as a young boy, he had gone fishing with his father. So important and special was that day for the son that he wrote in his diary; “went fishing went with my father, the most glorious day of my life.”

The son was to refer to it repeatedly in his diary, but when he turned to the same date in his father’s diary, he found; “Went fishing with my son, a day wasted.”

Children spell many things differently to adults, and children spell love like this … TIME.

Effective Conversations

2010-11-18T11:15:00.002Z

I am constantly surprised at the number of people (a lot of them being my fellow professionals) who do not ask enough questions to provide effective solutions to their clients.

I ask so many questions. I’m probably quite annoying – in fact my kids tell me I am very annoying. But without effective questioning you don’t get to the heart of the matter. Things just hang. Problems can be identified, but solutions are not proposed. And clients get frustrated with this approach. I don’t blame them – I would.

Without getting too technical I saw a set of accounts this week which had been subject to an audit. The audit opinion had been qualified by the company’s auditors. This, in itself, is unusual – this was qualified on four separate counts which is almost unheard of. After questioning the director for about three quarters of an hour, we discovered that he could provide information in advance of the audit that would satisfy all of those things. As the nature of the company’s business involved substantial bank borrowings, the last thing the company needs is a qualified audit report which will most certainly spook the bank. Oh, and the audit will be cheaper this year as less angst needs to be expended by the auditors on the actual wording of the audit report!!

I looked as another set of accounts for a new client a couple of weeks ago where the owner directors were purely remunerated by salary. Without them having to sell one other thing, or incur one extra cost, they are now getting an extra £5,700 a year each after-tax in their hands. Suddenly, their view of the business is different, as now they can afford to enjoy more of what they work for.

These are just two examples of me not doing anything particularly clever. I’ve just asked why are you doing that, or why can’t you do this? I’m amazed that in times of recession simple effective well tried advice is still not being given, because the professionals are too obsessed by the technicalities. It’s a simple case of not seeing the wood for the trees.

Here’s another one. Another audit, which means that the auditor has to send a management letter to the company outlining issues that the auditor has discovered. The auditor correctly identified that there was a major issue with subcontractors which if there had been a PAYE investigation might have led to a very substantial bill for the company. I’m talking £250,000 or so. They put this in the management letter. With the management letter they sent their bill, which was double what the company was expecting. They did not tell the company how to rectify this problem. I did!

What did they do wrong? Well, apart from not warning the company about the increased fee, they forgot that they were not just doing an audit. They got to the end of the audit, filled in all their questionnaires and checklists, and stopped. They did all their internal processes, which are important to them, but no one else, bluntly, gives damn about them.

These are all relatively recent – I can find lots more. It’s exasperating.

I have a simple rule for my professional colleagues that work with me. Anybody in the office can come to me with a problem. The door is always open. But – they must come with their proposed solution as well. It’s what I want, and I know full well it is what my clients expect - solutions Why have so few people failed to work this out?

And for your businesses, do your internal processes stop short of what your customers need and expect? Should you be looking at ways of asking better questions, before your competitors do?

I’ll happily look at them with you if you like, to get you to be as annoying as me!

QE2 - the new Titanic?

2010-11-05T11:58:00.001Z

QE2 is the name for the latest round of quantitative easing announce by America’s Federal Reserve this week.

If you want a 15 minute lecture on what QE is, go here What is quantitative easing?, it’s actually quite enlightening.

The Fed can’t cut interest rates (already done that, so has the Bank of England), so it has to print money to stimulate the US economy.

This has an impact on assets prices – stocks and bonds. We’ve done it here as well. It means, with low interest rates, that investors are driven to more risky assets to try and beat inflation with their money. Weaker, more indebted, less efficient companies survive, when in reality they should have failed, or been bought up by more successful rivals. Good companies are thus penalised, and handicapping the better businesses hampers your economy. So if you’ve got a decent business, blame the central bankers if you can’t expand, get credit, or buy up a competitor.

It also weakens the currency, which makes it easier to export, or such is the theory. But every major currently is trying to do the same, and they are all chasing their currencies down. Sooner or later, a major economy is going to say enough is enough, and introduce trade barriers, which should ensure we all suffer.

China is already not happy – they hold trillions in foreign currency – mainly dollars, which have just devalued. And China needs to export to maintain its growth. Where do most of those exports go? You guessed – the most consumption hungry country on the planet – the USA.

Commodity and food prices are already rising, and this would accelerate the trend. Inflation in prices but not in wages will hurt far more than anything the Chancellor proposed recently.
But anything to avoid the issue for a bit longer, which is the Fed’s game plan.

The Fed, by the way, has been in existence for 97 years. And in that time the dollar has lost 95% of its value. Not long to go!

Keep calm and carry on. Unlike the French..

2010-10-30T16:54:00.001+01:00

Just a few miles of water, yet so different. Here, we calmly accept swingeing budget cuts in welfare and public services. Over the Channel, there are riots over the relatively small change to pension ages. Even from schoolchildren who frankly don’t know what they are rioting for.

Yet, we, in Britain, are facing much more hardship in trying to deal with the public sector deficit. And let’s just remember, lest we moan first and ask questions later, that what is proposed is to take us back to spending levels in 2006-7, when we were hardly on the breadline. So maybe we can do this.

In earlier times, we as a nation were less keen on quantitative easing – a practice which now has worldwide approval, judging from the numbers of governments that practice it. In 1142 Henry II, when finding that some of his officials had debased the coinage, castrated some and cut the hands off the others. Now, their descendants are applauded for helping us to continue to spend above our means. Henry understood that the coinage was the wealth of the country, and debasing it devalued everything that could be bought and sold using it. How did we forget?

How much can we easily do without if we had to I wonder? Why not try now, while you still have the choice, and see what you can do? Will the car last another year? Do you need two foreign holidays next year, remembering that Airline Passenger Duty has just gone up? Can we manage? Of course we can. Will some people suffer? Of course they will? Will it be fair – when a good chunk of the burden falls on an overblown benefits system – no, it won’t. But is there a better way? Doubtful, and can we really wait to find out?

I know the answer to that one. I’ve had to be the nasty man that has employees that they have lost their jobs because the company couldn’t carry on as it was. I’ve known that it doesn’t just affect them, but their families, their kids’ aspirations, their community. And I’ve probably cut too deep, and put too many people out of work. Better too deep, and reemploy later, because if I hadn’t, and cut too little, they would all have been put out of work later. And that I think is where we are now. So it will hurt – a bit for some, a lot for many. Better than a lot of suffering for many.

And on a more cheery note, we can always remember what the difference is between civilised mankind and the animals. The English Channel!

You don’t have to be a genius to make money (but a genius can lose it for you)

2010-09-03T13:22:00.000+01:00

I’ve always curious about the role of the credit rating agencies (you know “Ireland has been degraded to AA, this has been graded a junk bond “– that’s BB by the way). And now, thanks to Addison Wiggins and The Daily Reckoning, I know. And more importantly I know why it matters to us all.

There are 3 main agencies – Standard & Poors, Fitch, and Moodies. All reside in New York. All staffed by geniuses, who do complex projections on the worth of sovereign debt, the bonds and credit worthiness of companies listed on the New York Stock Exchange, London Stock Exchange etc. Their ratings give us a clue as to the financial strength of the companies we (and our pension schemes etc) invest in. So AAA is the best, BB is junk. We thus have information how to best put our hard earned, after tax income. They are supposed to provide a clear playing field for all investors.

But they haven’t. They have mispriced risk over the last decade, and it has cost us all dear. A Senate study showed last month that over 91% of the AAA rated mortgage backed securities issued 2006-2007 have been downgraded to junk. S&P rated Iceland A+ three months before its currency collapsed. Only really clever people can muck it up this badly – hence the second bit of the title. All three rating agencies are run by brilliant quantitative economists, with Mensa levels of IQ and zero common sense. No model they used took account of generational crisis – all models were too short term. As I’ve pointed out before - study history!

Still they pontificate, and are used by just about all major firms and countries in the world. Why - because those firms offer securities which they want to be sold – to you and me, directly or otherwise. So we need information to encourage us to buy them. Would we buy if we thought our money was at far more risk, or would be expect more reward in terms of interest if we feared we would lose our capital? Of course we would, but that would make the cost of capital for the issuing firms that much higher, so the issuer wants a good rating.

Here’s a good rule that accountants use (well I do anyway). You should, too. Follow the money. Who gets paid by whom for what?

How do ratings agencies get paid? The big three get paid by the firms issuing the securities. That’s not to say the agencies are in cahoots with these firms. They are not; it’s simply a flawed model. Too cosy.

Other agencies do a different job – some would say better. Egan Jones is paid by the buyers of the bonds it rates. Does that sound better to you?Should you trust the truly important investments in your life to this circle of self interest? Ratings agencies, investment banks et al don’t bother with small companies, commodities, smaller funds and other such things with limited potential to make them money. Not you – them. Should you.

So by all means look at the barometers shown by the agencies, because that will tell you what everyone else is thinking, but don’t trust your widows and orphans fund to anything you don’t understand, or where you have to rely too much on someone else’s opinions. Especially if you aren’t a genius and they are.

Elimination of risk

2010-08-23T17:45:00.002+01:00

One post on decisions, and lack of knowledge, avoid risk! Now one on taking it...!

Our guiding principle in this country is to avoid risk – there are masses of legislation to reduce, avoid and cater for any piddley little risk or unforeseen event that may or may not come to pass. And we, the majority, have to comply lest one poor and maybe thoughtless individual should fall into a hole clearly in front of him, drink milk that smells like drains or otherwise suffer some catastrophe that a moment’s thought might have avoided. The State is our brain, filled with so so many things to guard against. Most of which will not and never will concern us.

This assumes that we are happy that someone or something else does our thinking for us. Most of this seems to involve some sort of regulation and form (or forms) to be filled in. We are required (how I hate that - can't someone simply say "can you please...?") to give information. Have you noticed the main point of this exercise is the filling in of the form, the assumption of authority over some trivial act we may have committed or omitted? The form is king – what anyone does with the information contained seem somewhat secondary – except to the official with the form who can then prove that their job has been done.

Would Baby P and others like him be so at risk through Social Services failures if those people charged with looking out for him had more time to do and less time spent on administering? The cry went up "we follow procedures” but to what end? Not the procedure itself, but so it seems. And whilst I’m at it, nurses spend 30% of their time nursing – you can guess what the rest of their time is spent on. And please don’t stop at nurses.

Where does this take us with risk? Ever fallen in love? Bit of a risk, putting yourself out there - so vulnerable, so open? Ever get burned? Did you do it again? Why? No Health and Safety edict and set of forms for romance yet. If they did, forget falling in love, as in practical terms it would be impossible.

We know what is certain in life – death and taxes! Ignoring taxes – no we won’t – did you know that the taxes statues now run to 11000 pages having more than doubled over the last 14 years? More than any developed country. Mainly in the name of eliminating loopholes, and achieving fairness. Can you quote them? Me neither, although I do know that more legislation (the accountant’s friend!) leads to more loopholes. And - why are we blaming people who exploit loopholes, when perhaps our ire is better directed at those who draft and pass such laws.

On to death then. Do we want to eliminate risk? Or we do we want our journey through life to be worth the price we pay for it? Do we want to be in the position where we are empowered to do the most we can with what we’ve got? If we do, then we need to be aware of risk and dangers, and enough information to be able to make an informed decision. But essentially, we want it to be OUR decision, don’t we?

There was a subversive but wonderful advert with an elderly couple; one says to the other: “Do you remember the time we almost went to Turkey?” Just go!

Risk aversion is fine. Measured, considered and then accepted as the price we are willing to pay for a life well lived. Which is also true of how you run your business life and I think, doesn’t contradict my earlier Ignore negative advice – I think..

Ignore negative advice!

2010-08-11T11:31:00.000+01:00

Actually, don’t..whatever your psychological hang-ups. Which we all have – psychologically we avoid negative advice. But people do not realise that success comes from avoiding losses in the main, rather than making profits.

Think about it. Where do you get positive advice? Bookshops are full of it. There are so many self help books, none called “What I learned from going bust”. A pity, because those lessons, hard learned, are more compelling and more lasting.

And whilst I’m at it, this country doesn’t give failures a chance. In America, someone fails, and people assume they have learned something, so at the least, they will not repeat that particular mistake. Here, more of a stigma. Once a failure, always a failure. Obvious nonsense when you think about it, but so true to the British, more pessimistic, mentality.

Linked to this need for positive advice, is the need to take some sort of action. Even when doing something is damaging. There is a presumption in business men that they are decision makers, so they must make a decision. Ignoring the fact that doing nothing is also a decision. How have they assessed the chance of error, if there is this need to make a decision? And how have they learnt how to do this?

For error avoidance is a skill, and it needs to be learnt. It comes from thought, research and planning. Decisions later..

But I’m getting ahead of myself. No chance of a decision until you’ve thought about the limitations of your knowledge.

When did medicine start saving lives? Any further back than last century? No, I’m not being rude. It’s simply that knowledge wasn’t advanced enough to save more than a small proportion of patients. Sometimes there was enough knowledge, sometimes it was luck, most times mortality rates improved through better sanitation and nutrition. And which doctor, when faced with symptoms outside their knowledge, would admit it? They would have a go, do their best, and hope.

So, for the business man, should he explore what he doesn’t know before he acts? But, when would any decision ever be made, I hear you ask? Later! Or not..

If we are trying to rely on financial markets, we now know (for the moment) we can’t. We thought we could. Our regulators have let us down .And we have been gullible and thoughtless. So is more regulation the answer? Doubtful, when the regulators don’t understand the ever more complex financial products available for a willing customer to buy (who certainly can’t be expected to know what they do).

We and our betters have relied upon the risk measurement scores of credit agencies, which weakened the system as bankers used them to build the very positions that failed. Simply put, no one really knew what the products actually did. And we, poor saps, jumped in – lemming like - so we didn’t lose out, relying upon other people’s assessments of risk and reward. They weren’t trying to mislead – they simply didn’t realise the limits of their knowledge.

Stop assuming that your house will provide your retirement fund, or that it will go up year on year, as it simply is putting too many eggs in one basket. (This country is obsessed by house prices!) Your shares, unit trusts, pensions plans aren’t given to certainties, no matter how many expert opinions you get. Use all the facts you can, realise where the knowledge stops, and if you don’t understand it, don’t do it!

Round and round the mulberry bush..

2010-07-25T16:08:00.005+01:00

I happened upon my dissertation , written in 1993, on the topic of small business failures and how to avoid them. I'm not claiming to be clairvoyant, but it's interesting to reflect how things don't change too much..

"The main sources of capital for small businesses suffer from the same problem, as they (the clearing banks etc) are all quoted companies. Given that banks lend other people's money (their depositors), but all losses of depositors' money are made good by the bank out of profits, the prospect of loss is relatively high over the short term, with consequent loss of investor confidence and reduction in share price. This is perhaps one reason why small businesses in this country suffer from short time horizons in financing the business.

The other ideology of wider home ownership was widely accepted particularly in the 1980's as house prices rose substantially over the whole country year after year. The policy was perceived as being extremely beneficial, as ordinary people found that they were getting wealthier and wealthier on paper as the equity in their homes grew. Lending criteria became more relaxed as the cover for any lending increased over time, as most lending for business was secured on the owner's house by way of second charge. Basic loan appraisal techniques of analysis of the business were discounted, as banks became readier to lend more and more. This led to better profits in the short term for the banks, all based on perceived good risk business with excellent security.

Businessmen were encouraged to attempt projects that their businesses may not have been capable of, as no cost benefit analysis or basic business plan was demanded of them before the bank would lend them the money to finance the project. Government fiscal policy at the time also contributed to the rise in credit taken, as the capital allowance and stock reliefs available could be largely financed on extended credit. The repayments, constituting a fixed cost, were not thought to be a burden, as continued growth in the economy and hence the firm, would soon see this extra outlay as a small and cheap price to pay for expansion and low taxation.

It is clear now what eventually happened. The boom years of the 1980's were followed by bust. The self perpetuating cycle of increasing house values, cheap and readily available credit and poor business analysis turned into a self perpetuating downward cycle as house prices fell, reducing bank security margins at the same time as interest rates rose reducing profits.

Banks, in an effort to mitigate losses, foreclosed on thousands of businesses, flooding the already depressed market with ever cheaper houses. Just about everybody in the country has been living with the consequences since the late 1980's, with some semblance of stability and growth being experienced in 1993 again."

And here we are again. Note the time scales particularly - late 80's, back to some sense of normality by 1993. About 6 years.

What have we learnt? This splits between people who were in business in the 1980's (and are still now - they've learnt quite a bit if they still exist now. And those thousands who never have experienced a recession before. There was an explosion in new businesses starting up in the late 90s and early 00s - things had never been so good, and money was easy to make. If you are still here, and suffering, better get some advice from someone who has seen it all before. Before you end up as a statistic, as frankly, there' s more pain to come, and a few years of it.

Firefighting – it’s not the new black!

2010-06-17T10:56:00.002+01:00

Are we getting out of the recession? Will it be a double dip recession? Will we end up like Greece? Will the Germans offer to buy the Isle of Wight and would we care? How will we survive? And what’s this got to do with firefighting??

Answers in order:

No (or maybe very slowly)

Very likely (supplementary question: Will Government cut backs make it worse? Yes, but no cuts will make it worse for longer)

Probably not!

The Greeks didn’t care what the Germans thought..perhaps they misheard that quote about the technological revolution. The Geeks shall inherit the earth. Oops.

By not firefighting! I’m getting there eventually.

What is firefighting? The (in)ability to manage what the day brings so you end up running around like your bum is on fire dealing with emergencies that you didn’t foresee or didn’t plan to avoid. Which in its turn leads to a poor performance all round, lost resources, lost profits and a generally weakened business if it happens too often. In fairness, we all have a day like this sometimes. It’s when it’s the norm because you don’t control your business, you will end up failing. The business will control you. And then stop.

Yet so many businesses are still doing it. And wondering why they don’t make any money, have to argue about which bill they will pay this week, have regular discussions with their bank...Is it so fashionable? Is it the new black?

Of course not, but so so hard to stop, once you’ve started on this path, apparently.

It’s no good saying I’d change, I’d plan, I’d write down what we do so I don’t have to repeatedly tell people how to do simple things...BUT...I’ve got all this stuff to shovel, so there’s no time, there’s no resources, I’m tired. You don’t understand. (Sorry – yes I do!)

Some people have plenty of time to moan about it, or even to do it again when it goes wrong, but no time to think about it so it doesn’t go wrong in the first place...rework is after all, the most expensive work you can do...

The good news is that it’s generally simple enough to fix. You don’t have to throw the baby out with the bathwater; you don’t have to stop doing all the things that are just about keeping you afloat whilst you sort it out. It doesn’t take enormous manuals and huge amounts of creative juices, with multiple business degrees. Or lots of money. Any more excuses? No, on we go then.

It just takes you to write down in note form what you do, see the holes (they will be obvious) plug them with another note, and tell people this is how it is. Or a diagram, or spreadsheet. Whatever is easiest for you.

Most businesses just need a few little tweaks, which together can have a cumulative big effect. Then, with your business running slightly better, you can afford a bit of time to look at a few more tweaks, which you will (I hope you have already identified), and implement them. It’s very energising, and gives you the encouragement to do more. It gives you back control and choice in your life.

I’ve just spent a day with a business who know exactly what they are doing (and not doing), exactly what results they need to survive, and even what the gap is. They have stuff written down, but they don’t tell people about it. People like their customers. They just needed a method and process to do it.

We are doing it all the time with our clients, (and often getting Government funding to do it) which is why they will survive and even prosper. Single dip, double dip, inflation, deflation – whatever. A well run business will find a way to survive. We know how. Your competitors know how. Hadn’t you better find out? Black may not suit you!

PS See Duct tape – the reason small businesses exist?

Shower gel – design and time management

2010-05-03T16:08:00.001+01:00

I suppose this is my Peter Kaye moment – shower gel is my garlic bread!

In my household there is a need to produced detailed specifications of some things which are not important to me, but that’s my problem.

Shower gel being one. Which I don’t understand. I struggle with the rules, which I clearly don’t know. Or perhaps want to. I have design issues...

We must have shower gel which:

Is of a colour (or range of colours – more difficult) which matches the bathroom;

Has a smell of some sort, which will complement the other unguents applied (deodorant, perfume etc) and not overpower or conflict (non smelling shower gel fits that criteria, but no smell is a no no!)

Be female oriented (I wash too by the way)

Be appropriately priced (I can do that – have you seen the cost of this stuff?)

By the way, we cannot use the various hotels’ products we assiduously collect on our travels, nor can we use them at the hotel; we have to bring our own.

And all for something, which by design and definition is poured down the plug!

So time is taken, over something which, in utility terms, can be obtained quickly and cheaply.

It’s about design you see. Not function at all.

In these days of abundance, we can choose from many different shower gels (or washing powders, toasters, kettles, and innumerable other essentials of modern living). But how do we choose, and what is their real function?

Obviously shower gel is for washing. That’s its function? Right?

Well, it’s one of its functions, and maybe not the most important. The amount of time you spend showering is 10 minutes a day? Times how many people in your household? Not long then, out of all the waking hours available. You may (or in my case, may not) appreciate exactly what you are using to shower with. In which case smell, texture etc may be more important to you. For what is, after all, a fleeting experience, this is of little interest to me.

All the rest of the time the shower gel is fulfilling its other function. Looking pretty in your bathroom – adding to the bathroom experience, and general ambience of your house. Telling visitors, (and reinforcing to you too) what sort of people live here. What their style and ethos is. Which is why so many shower gels are on the market (or toasters, kettles etc). The only way one manufacturer can differentiate its product in ages of abundance is through its design!

Design is increasingly the predominant purchasing driver – we assume that all shower gels get you clean, toasters toast bread, kettles boil water. Sometimes, after reading the technical bits, we still buy the one that looks good over the one that tells us it performs best. Just through better design. Look around your home – why is that product that colour, material etc? Because you decided it fitted best for you. Now look around your work. The same rules apply.

Now look around your products and services – are they designed to fit your customers’ needs and wants? Should they be...?

For someone who prefers minimalism (me), just go for the one which is quick and easy to find and buy. Time management is my driver. I’ll tell you why one day soon. Here’s a hint – it’s the only resource you can’t replace or extend.

And just don’t start me on fabric conditioner...!

Duct tape - the reason small businesses exist?

2010-04-04T13:54:00.001+01:00

So much to do, such little time...the constant lament of the small business person. Some other problem to rush to, some fire to put out, so many idiots who don’t understand...so organised!

Do most of us feel in control of our business lives? Or do we feel like the boy with his finger in the dyke, eyeing up a trickle of water just out of reach and dreading the next crack appearing? Will we cope? How can we take on more? Is this what we signed up for?

Where’s the duct tape? Slap it on everywhere and hope it holds. Cobble it together until there’s time to do it properly. Except - there’s never time – something else has cropped up.

So may people I speak to are in such a rush. No time for any thinking about their business, as they are too busy doing it. Doing what exactly though? Keeping themselves in some sort of job maybe – certainly not building a future for them and their families. So many people buy a job; they don’t buy a business. And it shows. It shows in results that mean you work more than the average number of hours (a lot more) for less than the average pay. It shows in more stress, less time with the family, less fun!

Less fun – what am I saying? This is no fun for anyone. None for the business person, the staff in the firm, the family who gets a tired stressed, snappy parent and partner...probably not even for the customers who have a less than perfect experience as everyone is too busy to do the job properly.

And those customers tell their friends...on average a good customer experience is reported to 7 people. A poor one to 19! It’s all (and more) in my free eBook – on www.hixsons.co.uk. How to get the customers you deserve? Just don’t be very nice to them. Those customers who remain will be less likely to pay premium prices for better products, because they don’t believe the firm sells that sort of product as their experience of the firm tells them differently. A bit of a downward spiral, if the business person isn’t careful.

This has got to change, if you value your sanity, your relationships, and your family (and your business). And please don’t tell me that you are doing it all for them. Have you asked them what they would like? You might be surprised. They might like the old you back, even if that means a worse standard of living. As my father would say, “The road to hell is paved with good intentions”. If you are doing this for your family, your relationship, your ego – whoever! Do it right!

Take some time to reflect. And if you haven’t got time (I can hear you now!) – reflect on what it’s going to be like if you don’t. And if some other issue came along, you’d find the time for that, wouldn’t you?

So – reflect on what you want instead of what you don’t want. You can change this – much more easily than you think, and in simple small ways that are easy to think up and implement and manage, yes, at the same time as you are slapping duct tape onto some other problem. I know how; I’ve seen it done many times.

Just ask.

Why are lawyers so miserable?

2010-02-17T16:59:00.000Z

I think it’s because they are driven by the clock. Every 6 minutes they have to record what they’ve done, and bill it to someone. Very little latitude or autonomy – they have to produce, produce, produce.

Accounts historically have done the same. Your bill is the sum of the time that has been taken. Never mind if some of that time wasn’t effective, or was wasted. The client (you) still pay for it. How fair is that to the poor client?

Of course it isn’t. I don’t expect to go into one of my client’s businesses and pay more if he dithers or muck it up!

And yet it is the way that most accountants and lawyers still work. The way their clients frankly distrust. And these are your closest professional advisers – the people you entrust with your hopes, dreams and every details of your business life?

Bizarre!

Still – lawyers (and accountants) are miserable. Why do they stay in this misery then? What makes them persist? Partly the management structure of their business I suggest. Most management thinking (everywhere – not just lawyers!) is carrot and stick approach (or stick and carrot!) with a top down control based style. And in any type of work which is right brain dominated – that is, creative, where people have discretion over what they do – it simply stifles creativity and diminishes performance. Not what you want from your accountant or lawyer?

It’s the place where science and business diverge. Business simply hasn’t caught up with the science of what makes people tick and want to do well. There was a study of 320 small businesses, half of which granted workers autonomy, the other half relying on top down direction. The businesses that offered autonomy grew at 4 times the rate of the controlled ones and had 1/3 the turnover of staff. That’s impressive, and we know how, and we are telling our clients!

It doesn’t work in all cases, and certainly not in routine tasks, but it does for more creative ones, like accountants and lawyers.

So – happy accountants and lawyers, which means that there are happy clients. But only if the time sheet is binned. That makes for happiness all round.

We binned them some time ago. Our clients hated time sheets, so we did it simply because if that. We keep timesheets solely as a budget tool – so we can quote prices for future work based on past experience. Clients know they can ring up whenever they like, get the help they need, and know they won’t be getting a bill. We are happier knowing we can do the best job we can, as we are not driven by the clock too. Win – win. That’s rare!

Mergers & Acquisitions - do they work? Ever?

2010-02-09T17:57:00.001Z

You can grow organically, or you can buy another firm. You look for synergy, and economies of scale. In umpteen years of advising clients on buying out others, I’ve never seen them. You might think you can cut costs in the merged firm, but don’t underestimate the costs of integrating two different ways of working. You may be getting access to a bigger customer base, or new markets. You may be a megalomaniac.

The Economist says that three quarters of mergers fail to increase shareholder value, and half destroy it. Look at the RBS ABN Amro debacle, which we are paying for. Don’t think it’s just big companies that muck up like this – anything they can do, so can small companies!

A lot of mergers or acquisitions are the result of management boredom, ego, and are encouraged by the advisers. The only ones guaranteed to profit from this exercise. Personally I spend my clients’ money like it’s my own. See the moths!

Some find out well into the buying process that it’s not what they thought but they feel that they are committed, so go through with it anyway, hoping it will work out. It won’t – they know that deep down, so smile sweetly, pay the bills, and walk away. It’s cheaper.

A lot of my clients have preserved wealth and gone on to grow through knowing what deals to leave on the table. Just about every deal I’ve seen has been underestimated in terms of cost and effort, and overestimated in terms of benefits. So if it’s looking marginal, it isn’t. Walk away. Another deal will come along – you won’t miss out.

Kraft and Cadbury will be interesting – looks like Kraft paid too much and Cadbury got too little. So many cultural differences will take an awful lot of effort to overcome. But with deals like this the ordinary man can make money too. Here’s maybe how.

Generally, owners of predators worry about overpaying, which sends their share price down. Whilst investors get excited about the target and that sends the target’s share price up.

So if you expect a bid (and Kraft’s was telegraphed a long way off), you buy the target and sell the predator. You can do this with a long spread bid on the target and a short spread bid on the predator. If the deal is announced and predator price falls and the target’s rises, you should make money on both positions. You need to commit the same amount to of money to each part so your strategy is market neutral, so if you’re right about the deal you should make money if the market rises or falls.

Of course if you thought the Cadbury deal would benefit Kraft shareholders, you would have simply bought Kraft shares. But you didn’t, did you?

PS This is not investment advice! Speak to your professional advisers if you are contemplating doing any of this. Each deal is different.

It's a farc-ade!!

2010-01-14T15:37:00.001Z

Just over 300 years ago the Bank of England was founded in what was the old Mercers Hall in London, and then moved to its present building in Threadneedle Street.

Current public debt stands at about £840bn. In the first 300 years of the Bank of England’s existence public debt rose to £300bn; in the last 10 years it has more than doubled. That is largely because of printing more money. By a government it’s called quantitative easing; by an individual it’s called counterfeiting. Henry VIII debased the currency by adding more base metal to the silver coins, such that when they wore down, it gave him a new name – Old Copper Nose. So it’s nothing new. Governments have been doing it for time out of mind. That doesn’t make it right, except that might is right.

John Mowlem rebuilt large parts of London, and carted the reclaimed bits back to his home town of Swanage; so much so that Swanage was known as Little London. There’s the clock tower (no clock now) that stands at Peveril Point; that used to stand at the end of London Bridge, commemorating the Duke of Wellington.

And then there’s the facade of Mercers Hall, (you know, the original Bank of England) which was reclaimed and now adorns the facade of Swanage Town Hall, surely the most impressive small town hall facade in the land. But that’s all it is: a facade.

So is printing money. It brings to mind that old definition of corporate advertising: its bit like peeing in your pants. You get a nice warm feeling but no one notices any difference. Except in Iceland, where everyone has been asked to pay about 40% of their salaries to us and the Dutch for their banks’ mistakes. No warmth at all, and they have noticed the difference. The temperature has dropped here too, and soon we will notice the difference when we have to pay all this back.

Behind the impressive Swanage Town Hall, down a short narrow lane, is the town jail. No hint of facade here; its four stone walls, and a thick wooden door. Trouble is, it only houses one, and there’s such a list of candidates!

7 out of 10 cats prefer....

2009-12-11T09:39:00.003Z

It’s one of those blind taste tests – Costa Coffee did it, Pepsi did it. And everyone finds that 7 out of ten prefer the promoting brand...

So why does Coke still outsell Pepsi? Were Pepsi skewing the results? Or is it more about how people make decisions? Do they make them blindly?

Of course not. It’s not just about the product. Pepsi had to find out the hard way that it’s about the image that comes up in the customer’s mind - the idea, the concept – not just the product. Granted, you do need to have a good product, but that’s not everything. People in America were buying Coke because it represented an idea to them – Coke was baseball games and apple pie and a flag waving on the front porch and families sitting down together for a meal and having a laugh with friends and Christmas gifts and leaving out cookies for Santa. When they looked at the two cans at the grocery store, the colours and images and feelings that came when they looked at the Coke can were why they chose that one – not first the flavour when they opened it later.

Completing technically accurate accounts and tax returns is important to me and my clients, but it’s not the image my clients have of me. It should be about how they feel when we meet, or ring up, email, letter – communicate. And it’s the same whatever you do. It’s about the customer journey – how they feel. Do they feel happy, relaxed, at ease, confident in you? Because they should – at every part of the customer journey – from initial contact right through the experience. You can have produced the best, more accurately machined, shiniest widget – you could be so proud (rightly) of your technical ability, so you think your clients should be too – but if they see untidy, late, uncommunicative – they get a different impression. And they won’t buy. The difference between good technician and good business person is a whole new subject!

Here’s another story – Scandinavian Airline Systems were awful at customer service (I’ve flown them) and were losing money hand over fist in the 70s and 80s. The new CEO instigated what is now called a Coffee Stain Survey. They found that if the passengers, when they flipped the tray in the seat back in front of them found a coffee stain, they assumed that the engines hadn’t been serviced properly. They reasoned that if the airline couldn’t even be bothered to clean the trays, they may not look too hard at more important things.

Do your own Coffee Stain Survey. Walk the customer journey. And have a free eBook – Customer Care – Why Bother? It’s on the website – www.hixsons.co.uk. It’s your lifeblood.

Queens Speech - letter to Santa!

2009-11-20T13:38:00.004Z

So you need a new law to get pupils a good education? Or one to halve the debts the Government has built up?

It's like saying that I will get up at 7 o'clock every morning - just do it man!

No fiscal Golden Rule has remained unbroken, and now we have the news that borrowing is nearly the same level as this country's GDP. Include unfunded public sector pensions, and its twice GDP.

Which means that spending will be cut, and tax WILL rise. Maybe some inflation too - after all VAT goes back up to 17.5% on 1 January (Happy New Year from Team GB). The highest rate of income tax is already set for 50% from April 2010. Maybe it will go higher yet.

And - to depress us more - analysis of all the recessions in the last century shows us that they last between 47 and 55 months. We, by the way, are at about month 19. Nationwide expects house prices to move on down next year as unemployment drives demand down. More good news.

The next 6 months will be characterised by all the political parties spending most of their time and energy on getting elected, and NOT on sorting this out.

Which mean that businesses who are getting by (just) will be further weakened. Many more will fail, especially in the next 3 months. The remainder will see their tax bills rise.

That is, unless they do something about it - to survive (even grow as some of our clients are doing) and minimise their tax. I have lots of cunning plans!

After all, it's not about cheating the taxman - it's about having enough cash to survive. I'm expecting a busy few months. I just don't want to hear people tell me afterwards - "I wish I'd taken your advice". Take it now!

Confidence tricks – has the recession been caused by over confidence?

2009-10-21T17:15:00.000+01:00

NatWest has surveyed nine thousand young people about salary expectations. Because of the recession, expectations have dropped. Instead of expecting to earn £70,000 when they are 35, they now only expect to earn £54,000. How’s that for confidence – when an average salary for a 35-year-old is just under £24,000?

In an international study, American students who ranked last in maths abilities ranked first when they asked how they felt about their maths abilities. Their positive thinking had completely deluded them about their actual abilities.

But we want to be confident, and we want our children to be confident as well. We are told regularly that thinking good thoughts will bring good results. Well, we have thought good thoughts over the last decade and look where we are now. We have assumed that the boom would continue. We have closed our eyes to history. And I don’t mean by that the previous centuries, I mean the previous few decades which we have lived through. Why did we assume that the last recession would never be repeated? History does repeat itself.

Yet confidence, and in particular financial confidence, and more particularly the bankers and financiers who broke the system, has at least in part caused the problem that we are now going to be living with for the next umpteen years.

Just because I’m an accountant does not make me a pessimist! It might, I hope make me a realist. That’s that old definition isn’t it – a pessimist is a realist described by an optimist!

Apart from the financial implications of my clients’ actions, I deal with their personal objectives and to some extent their emotions. They are all interrelated. I’ve even done courses and taken qualifications in an attempt to understand why people act the way they do, and to try and find ways to change that when necessary.

As a country we are determined to fill our lives with self belief and good thoughts as a method of driving ourselves towards good outcomes. I think we have caught this disease from over the water. There is a whole industry which started in the United States and is now throughout the Western world which peddles the mantra that if you think bright positive and optimistic thoughts good things will be drawn to you without any further effort on your behalf. It’s not positive thinking, it’s magical thinking.

I do believe that you can influence the way that you act and hence your outcomes by the way you think. And I help people with this. But I do not inculcate them with a belief that they can overcome any obstacle just by wishing it so. I try and give them a realistic outcomes and realistic plans to achieve them. Plans which can be amended and adapted to fit changing circumstances.

As a society, we have not done this in recent years. We have assumed the best, and even worse, assumed we had to do nothing to achieve it.

Individual self-esteem is a good thing based on realism. Perhaps more of this would lead to a community with more chance of achieving realistic goals and with more sense of purpose and values.

Individually, and in businesses, be realistic (not pessimistic!), set realistic goals with some slack in them, and enjoy what you’ve got.

Why banks repackage assets, and what it means for us

2009-09-17T16:37:00.002+01:00

It's all about de risking the bank's balance sheet. It's so difficult to decide when bankers really make money because the financial instruments they use are so complex. And look how many dodgy securities they are sitting on at the moment.

So what's a poor banker to do to improve matters? How about selling some of these securities to a brand new offshore company, and lending the company the money to buy them? It gets over the following problem: you have to write down your securities if you don't think you're going to collect on them, and that makes a hit on profits, and worries people. But if you have lent money on a house for example, as long as the repayments are still being made, even if the house is in negative equity, you don't have to write it down on your balance sheet. so if I were a banker, I would be delighted to sell a dodgy asset and get a loan in exchange which I don't have to write down. Is

And this is what has just happened. Barclays had just sold $12 billion worth of securities to a brand new company and lent it just about all the money to buy them. It's bought itself some time. Banks need all the time they can get at the moment.

What does it mean to us? Well, the bank gets a bit safer. That's good. But if the bank has lent its money to this company, it can't lend it to us. So credit has just got a little bit more difficult, and a little bit more expensive all round. and that means that the value of assets you buy with this credit is likely to fall to prop up the price of the assets that Barclays now don't think they will collect on. this deal was done under very, very favourable terms to the lender. Not the actions of a bank that thinks that its assets are worth what it paid for them.

Anyone think that the recession is over?

6 killer facts in micro enterprise learning and support.

2009-09-11T15:09:00.001+01:00

A|ll from the UK Sector Skills Body for Enterprise

Fact:

Over 95% of enterprises (4.5 million) in the UK are micro enterprises with fewer than ten employees. A fair share of government skills and support funding to start ups, self employed and micro enterprises will provide the best returns for the economy, employment and society of any UK sector.

Yet 95% of government funding for business skills and support goes to the 5% with 10 or more employees

Fact:

Over three quarters of these businesses have no employees beyond the people running them and only just over a quarter of these businesses are based away fom the owner’s home. They may be hard to reach but SFEDI Advisory Board Members do and can help them. It is vital that we do, for the UK employment rate.

Not having employees or conventional business premises seems to make them invisible to government enterprise skills and support policy. Yet if they were not in business on their own there would be nearly 3.3 million more unemployed. Our unemployment rate is only at the current level because there are over one million more self employed people than in the last recession.

Fact:

Enterprise owners and the self-employed account for one in seven of the people in work. Self employability and enterprise skills are as important as employability and sector specific skills and lead to most net new jobs growth.

Enterprise owners will account for one in five people in work by 2020 and one in three by 2050. Nearly all the net new jobs growth in the private sector comes out of the growth in self employment and micro enterprises.

Fact:

There are almost half a million new enterprises starting each year. Providing effective start-up support can halve the rate of early business failure. We believe that government should fund a minimum level of start up training and support to everyone at pre-start for their new enterprise. Running your own enterprise requires specific skills and know how – just like any other career.

In England there is no government policy to ensure all those starting up get the skills coaching and business support to ensure they have the best chance of surviving and thriving in their new career. With the right support over 85% will still be trading in 3 years time and 6% of them will become substantial businesses. (Inbiz)

Fact:

Almost two-thirds of people running small businesses have no prior business/ management experience and less than a third of these have any formal business training. 12% have no qualifications and 55% have a highest qualification below Level 3. At least 200,000 adults and their enterprises could benefit each year from achieving an enterprise qualification which would be of value for all their working life.

Assisting prospective micro enterprise owners with the skills coaching and business support they need would mean a minimum of 100,000 new level 2 business enterprise qualifications, 30,000 new level 3 qualifications and 5,000 new level 4 qualifications per annum.

Fact:

Almost all these people say they develop their business abilities by learning from their own experiences and half learn from other enterprise owners. Enterprise learning and support needs to be experiential, active and integrated into the everyday practicalities and problems to be solved in starting or running your own enterprise.

We have researched, defined and proven the skills and know how needed to start up, survive and thrive. We know how to engage with prospective and existing micro enterprise owners. We know how to quality assure and recognise the appropriate enterprise learning and support. We have private and social enterprise sector backing and we’d like government to meet us half way.

The Missing Madoff Millions! How to avoid fraud in your business

2009-08-19T17:04:00.002+01:00

Many will have been shocked by the news from the US of the missing Madoff millions - or rather billions. One of the features of this scandal was that a high proportion of his investors knew Mr Madoff personally and trusted him with their money. It perhaps underlines the dangers of thinking you know someone and, in consequence, perhaps not being as careful as one might otherwise be.

Some form of fraud or theft could be happening in your business right under your nose. Are your internal controls strong enough to catch it?

Often small business owners only find out about fraud and theft when it’s too late. And very few businesses are able to fully recover, if at all, from an internal theft. Having good internal controls means you can focus on doing what you do best, building your business.

We’ve seen it in our clients – it’s happened to them, so I’m keen it doesn’t happen to you. It’s generally perpetrated by someone you know well and trust, and in these times of economic pressure, people will do things which are out of character, so you need to be extra careful.

Here is a useful checklist to help you think about the risk of fraud in your business.

Fraud Checklist

Fraud is a potential threat to every company, including small and medium entities. The risk of fraud can be managed. The following is a checklist of simple and affordable measures on managing the risk of employee fraud, including some technology-based measures that can be adopted when the threat of fraud is higher.

Accept the idea that fraud is commonplace and can happen at any business.

Set an appropriate ethical example for employees to follow, and treat them with respect and fairness, including fair play.

Ask your employees to identify ways in which someone could commit fraud at your company and the ways to avoid it.

Develop a code of conduct that explicitly prohibits employees from committing fraud, conflict of interest and other illegal acts. Ensure all employees, vendors and customers get copies of it. Consider having key employees provide annual confirmations of their compliance and have a clear company policy on time and expense reporting.

Adopt a “trust, but verify code”. If you need only one bookkeeper, conduct a careful background check before hiring. Take note of employees who appear to live substantially beyond their means.

Verify the credentials of all new vendors before they are authorised to supply the company. Periodically review vendors to identify possible improprieties.

Make sure all disbursements are properly approved.

Protect yourself against cheque alterations by adopting electronic transfers for large payments, using direct deposit for payroll, placing a financial limit on cheques and implementing up-to-date cheque security measures.

Review original bank statements before your bookkeeper does. Keep an eye out for unexpected overdrafts or declines in cash balance.

Make sure bank statements are reconciled each month and that an expert adviser, such as your accountant reviews the bookkeeper’s work periodically.

If something seems odd, whether it is a disbursement to an unfamiliar vendor or unexpected costs, consider the possibility of fraud.

Growth and Profits! Or Cash and Choices?

2009-07-07T11:05:00.002+01:00

You don’t want those!

You want CASH and CHOICES! Growth and profits help the business to fulfil your personal objectives. You didn’t start the business so that you could have thousands of employees, and earn millions of pounds. You started is that you could have the freedom to do that kind of work you like, be your own boss, take holidays or pursue outside interests when you like, and have the cash available to do so, and even into your retirement.

But it’s not always how you end up, is it? Overworked, stressed, needing help but not knowing what, and struggling to get a week in Majorca let alone anything more exotic.

Most business advisory tools are used to drive growth in profits. But without a clear understanding of what YOU want, that only does half the job. You need to be clear about your goals, and by that I mean personal goals.

Driving growth and profits up is a means to an end, not an end in itself. It still needs to be done, and that’s what we do best here. But we are know why.

Because other key thing that we try and build in is choice. You can choose to take four weeks off or you can choose to work. Sometimes – most of the time these days – you can’t choose. You have to work. But if we can build in the choices then the work becomes easier, stress levels drop, and who knows – you make it for your four weeks off.

It’s essential to plan personal goals as well as business ones. Just doing the business ones is just doing half the job.

Do the maths!

2009-07-03T14:19:00.000+01:00

People have some number blindness particularly when they’re trying to be positive. I come across this all the time, and in particular, in this recession, people are keen to feel good about their jobs and their houses. So they forget what the numbers really mean – particularly percentages.

If your house has dropped by 50% in value, and then goes up by 50%, it doesn’t go up to the same level it was at the start. Let’s do the sums.

Price year one £100,000
50% price fall -£50,000
Price at the beginning of year two £50,000
50% price rise £25,000
Price at the end of year two £75,000

Do you see how percentages can mislead us? And oh how we are being misled at the moment!

The government told us that the economy’s performance in the first quarter of this year showed a 1.9% drop. Now that has been revised to 2.4% drop. I wonder if more revisions are coming. That’s 4.9% in the 12 months by the way. The largest deficit since official records began just after the war. They didn’t offer us this fact – you had to go look yourself.

Let’s look at the USA for a moment. Employment numbers last month showed a better than expected drop. This wasn’t though a genuine improvement, but new and improved techniques for recording the numbers. More adjustments for seasonal adjustments and birth and death models were built in. The discouraged workers – those who have given up looking – were not included in the jobless figures at all, for the first time. Without all these shenanigans, the figures would have shown unemployment getting worse at the same pace as last year. If the authorities were measuring on the same basis as in the 1930s, then they will be showing similar levels as those in the Great Depression – about 20% of the workforce. But we can’t tell people that can we?
My message is simple – check the numbers and question the basis.

Now here’s the entertainment – Warren Buffett’s response to an enquiry about when the positive effects of the US government stimulus package will be seen “ We’ll see the benefits eventually but not yet. You can’t make a baby in a month by getting nine women pregnant”.

But the one I really like comes from Ryanair CEO Michael O’Leary “ the UK needs a new government because they are a group of witless, hopeless Scots whose solution to the recession is to tax your way out of it. If that was the answer, Ted Heath would have an elected to six successive terms.”

Question – assuming that the government is going to lose the next election, are they setting up the next administration to fail so they get back in five years time? Of course, that implies that we are paying for this.

Boom & bust?

2009-06-17T11:57:00.002+01:00

Where is the economy going on? And equally important, in what timescale? I wish I knew!

Unemployment is up a whole 10% in the last quarter to 2.26 million. Yet there has been a bounce in the stock market, and our oh so short term memory is leading us towards the end of the recession. After the stock market collapse last year, people expected a bear market rally and that is what we have had. There has been a bounce in economic activity as businesses were forced to restock after cutting back so sharply last year. But the rally continued, and people have started to question whether this is a bear market after all. They wonder if the recovery is actually genuine. Surely this is what bear market rallies do – they suck in investors, stocks rise, until eventually there aren’t any buyers left, and stocks plummet again.

It’s always wise to consider the fundamentals. Any recovery in corporate earnings is probably short lived, because it has been made by cost-cutting, and by government spending money that we don’t have. At some point the economy must generate growth without the benefit of extra government money fuelling it, and cost-cutting in corporations can only go so far. What cost-cutting does is make life harder for businesses in the future. By all means cut out waste now, but remember on a countrywide scale that firing people leads to higher unemployment, which leads to less spending power, which leads to fewer sales for your company.

The general public is desperately paying off debts as fast as it can, and so are companies. I make no complaint – it’s what people should be doing, but people also need to be aware of the long term implications of this policy. Companies are doing everything they can at the moment to reduce their indebtedness, usually by selling more shares to their shareholders to repay debt. They’re not raising money on the market to invest in future growth. They’re even repaying debt when interest rates are low.
And it can clearly be seen that interest rates are likely to rise – look at the standard variable rate mortgages now, and what a building society will offer you as a fixed rate of two to five years in the future. There is about 1½ percent difference – higher of course. They expect interest rates to rise. So does everybody else.
Which in the long term tends to leads to inflation. The government will be pleased, because then it will be repaying at the enormous amounts of debt that it incurred in bailing out banks etc with cheaper money. We, as taxpayers, should be pleased as well because it will reduce the amount of time that we have to pay interest to the people who have bought this debt. But we as consumers will be paying out through an inflationary period in the longer term.

In the near term, we are still in a recession and there may be some deflation. In short, we’re back to boom and bust.

Holes and avoiding them

2009-06-16T17:23:00.002+01:00

Denis Healey’s First Law of Holes – “ When you’re in one, stop digging!”

A very good thing to keep in mind when you are Chancellor of the Exchequer. And also a very good thing to keep in mind when you’re in business.

Because, I have discovered, people have a habit of repeating themselves, especially when they are in some difficulty. The businessman thinks that if he works harder, the problem will get better. But often it is the method of working that is causing the problem. So working harder makes it worse quicker. So he works even harder, because he sees the problem getting worse, but he does not stop to think why. He is too busy doing when he should be thinking.

In this recession we are seeing the rate of personal bankruptcies and insolvencies rising. It’s no surprise – so many businesses were started in the boom years, and the owners have never experienced a recession so do not know what defensive steps to take. It’s such a waste when the business goes bust. The headline news is the personal bankruptcy and the redundancies. But that’s really just the tip of the iceberg. In the last recession a large housebuilder went bust in the south east of England, and 120 of its subcontractor firms went bust because of it. The same thing is happening now.

Apart from the personal tragedies, there is a collective pool of knowledge in any business which is now dissipated. So starting again is much more difficult for everybody concerned.

There is another, very common, issue when the business is failing, which is generally evidenced by business men rather than business women. The male of the species does not want his wife and family to worry, so does not talk in as much detail about the problems he is facing as perhaps he should. Then, when the business does fail, it is a shock to the family. His wife feels there has been a lack of trust in the relationship, and it puts it under even more strain than the business failure alone. So a failure in the business can lead to a failure in the relationship and the family as well. Such a waste.

So I think there are two points to note. Firstly, businessmen would benefit by being more open with their family. And secondly, they need to stop digging holes. To do that, they need to change the thinking. Or, at the least, stop and think. And if they cannot think of a better way of doing it, then they need to find someone who can.

The great house price debate!

2009-06-09T11:54:00.001+01:00

In English it is called a complex equivalence. It’s when two statements are joined in your mind but not in reality – it’s as though someone has said ” which means that” in between the two sentences. Salesmen use it all the time when trying to sell the benefits will feature of some new car or the like. The rest of us just use it continually without noticing. “ You’re not smiling.” (which means that) “You’re not enjoying yourself”. No – I’m simply not smiling!

There’s plenty of this about in the discussions on the economy that you can hear about at the moment. Particularly where house prices are concerned, because they seemed to be the key barometer of how we feel about our personal wealth in this country.

Today’s announcement that the housing market has seen a bit of a pickup is a case in point. The Royal Institution of Chartered Surveyors has reported that buyer enquiries have risen for the seventh month in a row. Apparently, this means that house prices have at worst bottomed out, and may even be rising! Whereas I simply think that people think that the market is coming to a bottom and are looking for a bargain.

But if we look at historical measures of affordability, even this looks bizarrely optimistic. Historically, average earnings and house prices have a correlation – 3 ½ times average earnings equals average house prices. Currently, even after the last 18 months of price drops, it is nearer for a half times average earnings. So on that basis, a further drop is necessary just to make houses affordable again. Given that the UK economy is in recession, and that unemployment is still rising and will do so for the foreseeable future – at the least the rest of this year – I cannot see that the bottom has been reached yet.
There is another measure as well – apparently charts are available going back to before the 1800 is showing that house price cycles go in 18 year patterns. 14 years of growth and four years of falling prices. You work it out – how many years of falling prices have we had so far?

I also don’t follow the logic of people who want to buy before they are certain that the bottom has been reached. They argue that if they haven’t quite reached the bottom then at least they’ve bought the property they want at a reasonable price. However they can only judge that in hindsight once the bottom has been reached. They don’t know when they buy where the bottom is yet. They could be buying still quite expensively. Surely it is better to wait until a continual upturn has been observed, and buy then, knowing that they are away from the bottom? It makes much more sense to me.

But what are your views – there’s a survey on this page, so please take it and let me know your thoughts. Do you think house prices are going to go up, stabilise or go down in the near future?

Govt funded help

2009-06-06T14:37:00.003+01:00

The Government are funding training and consultancy on a wide range of business issues allied to the recession. It can be for planning, strategic issues on finding new customers, keeping the ones you have, improving profits - in fact, pretty much anything that can demonstrate a business benefit for the owners and senior managment.

The scheme has been extended for another year, and is aimed at small businesses with 5 to 250 people, although smaller entities can benefit too, in the right circumstances. The paperwork is simple, and funding of £1000 is available for businesses that spend £1500 on this process.

As a firm, we've had a lot of success with this scheme. We've found extra profits for every business we've run it for, by using our specialist software package which facilitates a discussion on the areas for improvement, and produces an easily actioned list of changes.

It's good, produces quick results, and costs next to nothing. And might make your business survive!

The sizzle and the sausage

2009-06-04T14:04:00.001+01:00

In selling, there is an adage that you sell the sizzle, not the sausage. This means that you sell benefits rather than the product itself. This is how it goes.

“Hello Madam. Would you like to buy some of these tubular cardboard coloured things with flecks of green and brown in them? You can eat them you know! They are called sausages. Would you like me to slip you a sausage Madam? You're going to report me to who? I'm sure there's no need for that……”

Or maybe it should go like this.

“ Hello Madam. Here is a quick tasty and nutritious meal for all the family. You can cook them really easily, and they go with all sorts of things. Everybody likes them. They are full of meat herbs and spices so they're really tasty. Can't you just hear them sizzling in the pan ready to be eaten, with that lovely smell wafting out? You'd like me to slip you one Madam? Well, really!”

Do you see what I mean?

However, there is often a difficulty both in sales and in other areas of life. Some people get the idea of selling the benefits very easily. But after they have sold the benefits, and got the sale, they stop. They miss out the last vital point. You may sell the sizzle, but you still have to deliver a sausage.

In other words, they over promise and under deliver. But if you deliver on your promises, whilst you will be in the minority, you will be trusted, and people will know that they can rely upon you. So make sure that before you make a promise, you think about the delivery, and negotiate if needs be time and space so that you know you can deliver. It's worth it. It saves an awful lot of hassle. And people will always be happy to see your sausage!