I met with a newly established business yesterday and we got around to discussing pricing for his work. We talked about what he did - the different types of work, and what he charged for each type. We then discussed how much of each type of work he would be likely to gain in the next year. We talked about his gross profit margins, his overheads and what he wanted his earning to be.
The end result?
He needed to work 425 days per year to reach his goal!
By taking these initial numbers we were then able to calculate the mix/amount of each type of work that would give him the profit he wanted. And we discussed whether it would be possible to generate that mix.
We also discussed the problems with trying to win work by quoting low prices - in my experience there are 2 main problems:
1. Having won business by quoting low prices, it's hard to then get those customers to accept a price increase to take them to the "proper" price.
2. Potential customers may percieve a low price to mean "low value" or "poor quality and service".
So pricing is not, as they say, "rocket science", but it does need to be approached in a logical way and obviously there are many ways to price for your service/product.
Wednesday 30 May 2012
Thursday 24 May 2012
Business Review
Throughout July 2012 we are offering businesses the opportunity to have a free business review. We will talk through your latest Accounts and discuss:
- profitability
- tax saving ideas
- cashflow
- accountancy fees
- potential HMRC problem areas
- how to become a client of Holgate Court Accountants
Visit our website at http://www.holgatecourtaccountants.co.uk/ and complete the "Free Consultation - Request a Call Back" information. We will contact you to make a suitable appointment. Book early for your preferred date and time.
- profitability
- tax saving ideas
- cashflow
- accountancy fees
- potential HMRC problem areas
- how to become a client of Holgate Court Accountants
Visit our website at http://www.holgatecourtaccountants.co.uk/ and complete the "Free Consultation - Request a Call Back" information. We will contact you to make a suitable appointment. Book early for your preferred date and time.
Thursday 17 May 2012
Break Even Point
It became apparent at a meeting with a newly signed up client, that they really had little idea about their break even point.
What do I mean by that? The breakeven point is the point at which neither a profit or a loss is made. If a business owner doesn't know how many sales he has to make each month to cover the direct expenses and overheads, then that indicates a lack of control over the business. Making a profit is purely down to luck.
We looked at the latest 3 months sales and expenses and discussed margins, sales and expenses with the owner, then went off to do our sums. At our further meeting, he was quite shocked by the calculations - his break even point was much higher than he had thought. I wasn't quite so surprised as it supplied a reason for the cash flow being poor! (There are many other reasons for poor cash flow though)
How does the calculation work?
If your overheads (premises, staff, office expenses, finance costs, vehicle costs etc etc) are running at £5,000 per month, and your GROSS profit margin is 50%, then you need £10,000 of sales per month to breakeven.
Having established the breakeven point with the client, we were then able to have a useful conversation about how to improve things.
The clients reaction - "no one has ever told us this before"!
Accountant in Romford
What do I mean by that? The breakeven point is the point at which neither a profit or a loss is made. If a business owner doesn't know how many sales he has to make each month to cover the direct expenses and overheads, then that indicates a lack of control over the business. Making a profit is purely down to luck.
We looked at the latest 3 months sales and expenses and discussed margins, sales and expenses with the owner, then went off to do our sums. At our further meeting, he was quite shocked by the calculations - his break even point was much higher than he had thought. I wasn't quite so surprised as it supplied a reason for the cash flow being poor! (There are many other reasons for poor cash flow though)
How does the calculation work?
If your overheads (premises, staff, office expenses, finance costs, vehicle costs etc etc) are running at £5,000 per month, and your GROSS profit margin is 50%, then you need £10,000 of sales per month to breakeven.
Having established the breakeven point with the client, we were then able to have a useful conversation about how to improve things.
The clients reaction - "no one has ever told us this before"!
Accountant in Romford
Tuesday 15 May 2012
Client referral
It's really great when an existing client passes your name to a friend/business associate who needs some advice. It's proof that the existing client is happy with what you are doing and is confident that you can look after the new client.
So I went out to see the new client and got on really well with him. He has a good business, but is suffering with the general economic climate at present. Nonetheless, he has been able to adapt because he did not make the mistake of saddling himself with high fixed overheads whilst times were good. So the business has been scaled down to an appropriate level and the owner has some time to consider his next move, or simply wait until things improve.
We talked about the business and I looked at his books to work out a price for the work he requires. I wasn't interested in what he was currently paying - only in what it would cost for me to do a great job for him. I knocked about 40% off what he is currently paying!! Result - he's getting better service for a much lower price and I've picked up a new client I am looking forward to working with.
So I went out to see the new client and got on really well with him. He has a good business, but is suffering with the general economic climate at present. Nonetheless, he has been able to adapt because he did not make the mistake of saddling himself with high fixed overheads whilst times were good. So the business has been scaled down to an appropriate level and the owner has some time to consider his next move, or simply wait until things improve.
We talked about the business and I looked at his books to work out a price for the work he requires. I wasn't interested in what he was currently paying - only in what it would cost for me to do a great job for him. I knocked about 40% off what he is currently paying!! Result - he's getting better service for a much lower price and I've picked up a new client I am looking forward to working with.
Thursday 3 May 2012
Manufacturing Client
Yesterday I went to meet a potential new client. They are in manufacturing - timber products. I have a lot of experience in manufacturing, at shop floor and production management level. The client signed up on the spot as he has never had an accountant who understands manufacturing issues and problems. I am looking forward to working with them and am sure I can make a significant difference to their business.
Not all the problems are going to be easy to deal with. From my first meeting with then I came away with the thoughts that:
a) the client is trying to produce a premium product and sell it at a less than premium price
b) productivity levels in the factory may be lower than they could be
c) no proper monthly management accounts prepared - so little idea of what gross and net profit margins are being achieved.
Interesting times ahead!
Not all the problems are going to be easy to deal with. From my first meeting with then I came away with the thoughts that:
a) the client is trying to produce a premium product and sell it at a less than premium price
b) productivity levels in the factory may be lower than they could be
c) no proper monthly management accounts prepared - so little idea of what gross and net profit margins are being achieved.
Interesting times ahead!
Monday 30 April 2012
Business Plans
Off to meet a new client this morning. They are looking for an external investor to put in some finance for their new business and want some help with the financials. It's encouraging that they are seeking professional help.
As all of us who watch Dragons Den know, it's not just about having a great idea, it's also about the investors Return.
The numbers are important. We need to think about profits and cashflow and about growth. So, yes, the numbers might contain estimates, but they will show whether the business model works or not. How risky is the Investors money? Too much risk and they won't invest at all. The higher the risk, the higher will be the investors demands.
Let's see how it goes.
So the client clearly has an innovative idea and is very passionate about it. Some work has been done on a business plan, but the numbers have not been pulled together, so at this point no-one knows if the venture will be profitable or what the cashflow will be like.
On a positive note, investors have been identified and have expressed interest in the idea. But no-one is going to invest £500k without seeing the numbers - profit and loss account, balance sheet and cashflow for years 1,2 and 3. Investors appreciate that there is risk in these sorts of projects, but they seek to minimise their risk and expect a rate of return that reflects their risk.
The P&L needs to be prepared in detail, not only for the investor, but for the investee also. There is no point in putting your heart and sould into a venture which is doomed to fail from the start. So we need to consider all expenses - start up expenditure, premises, staffing, marketing, office running, finance cost, professional fees etc. And - don't forget to allow for you own reward and of course inevitably - tax!!
Time consuming yes, but time spent now could save a lot of stress further down the line.
Summary:
If you want outside investment then a good well thought out business plan is essential. You should do one anyway to make sure your business model works. Do the basics yourself, but work with a professional especially on the finance and legal aspects.
As all of us who watch Dragons Den know, it's not just about having a great idea, it's also about the investors Return.
The numbers are important. We need to think about profits and cashflow and about growth. So, yes, the numbers might contain estimates, but they will show whether the business model works or not. How risky is the Investors money? Too much risk and they won't invest at all. The higher the risk, the higher will be the investors demands.
Let's see how it goes.
So the client clearly has an innovative idea and is very passionate about it. Some work has been done on a business plan, but the numbers have not been pulled together, so at this point no-one knows if the venture will be profitable or what the cashflow will be like.
On a positive note, investors have been identified and have expressed interest in the idea. But no-one is going to invest £500k without seeing the numbers - profit and loss account, balance sheet and cashflow for years 1,2 and 3. Investors appreciate that there is risk in these sorts of projects, but they seek to minimise their risk and expect a rate of return that reflects their risk.
The P&L needs to be prepared in detail, not only for the investor, but for the investee also. There is no point in putting your heart and sould into a venture which is doomed to fail from the start. So we need to consider all expenses - start up expenditure, premises, staffing, marketing, office running, finance cost, professional fees etc. And - don't forget to allow for you own reward and of course inevitably - tax!!
Time consuming yes, but time spent now could save a lot of stress further down the line.
Summary:
If you want outside investment then a good well thought out business plan is essential. You should do one anyway to make sure your business model works. Do the basics yourself, but work with a professional especially on the finance and legal aspects.
Holgate Court Accountants are learning how to blog! What next?
Well, lots of interesting blogs about runnimg a business, book keeping, business taxation and what all the numbers mean.
We are based in Romford, Essex and are kean to help business owners run successful, enjoyable and profitable businesses.
Watch this space!
Mark
Well, lots of interesting blogs about runnimg a business, book keeping, business taxation and what all the numbers mean.
We are based in Romford, Essex and are kean to help business owners run successful, enjoyable and profitable businesses.
Watch this space!
Mark
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