Category: Blog

I’ve recently increased my efforts to lose weight. Having a holiday coming up has certainly helped with the motivation. I’ve been saying for months I need to lose weight but the urgency wasn’t there. Now, with a month to go, probably far too late, I’m starting to do something about it.

The first thing I did was to start taking measurements. The gym I go to has a machine that scans your body and then provides readings for weight, muscle mass, fat mass, etc. Great! All interesting stuff but my main focus was on the weight loss.

I proceeded to go for morning runs (3 or 4 a week), visit the gym to do some strength training, had the odd swim and tried to eat better. I also reduced my alcohol intake.

2 weeks later, jumped on the body scanner…. I’d put on weight!!

What a load of expletives! Why bother with all that effort?

Well…. The important thing here is that, yes, I had put on weight, but because the body scanner took more measurements of different things, such as fat and muscle mass, I was able to see that I had lost fat and put muscle on. I had put on more muscle mass than the fat mass lost, which is why my weight had increased.

Now… this put me in a much better mood. I’ll be ripped in no time!! Just got to keep going. Persevere!

Why is this all relevant?

The key take aways here are that:

1. I thought I knew what my goal was but it turned out I didn’t. I thought it was to lose weight, but instead it was to get into shape. Lose fat, gain muscle.
2. You don’t know how close to, or far away from, your goal you are unless you measure your progress.
3. I was only able to see progress by measuring several different KPIs. One alone didn’t give me the true picture.
4. I didn’t know what the useful KPIs were until the machine showed me.

From a business perspective, it’s much the same.

• The business goal for many of my clients is to earn more money. This is great. However, will they ever achieve it or will they just always want more? Perhaps a better goal would be to earn £X, so that you have enough to cover all outgoings, pay for 3 really nice holidays each year and have money left over to buy what you want, when you want. If you can put a value on that, it makes it far more real and meaningful.

• Many business owners don’t measure their progress. Even if they know their goal, which they often don’t, they don’t know how they are performing in relation to that business goal. Regular management accounts will keep you on track, allowing you to see how you are performing each month, in real time.

• Don’t just measure one thing. For example, you might be tempted to measure your net profit (bottom line). More profit means more success, right? What if earning that profit meant that you were working more hours than there were in the day. The hours you were working meant you couldn’t ever take a holiday even if you were earning the money. Perhaps you could also measure the number of hours you are working each month too, and work on reducing it.

• Your accountant will have worked with many businesses and should provide a great insight into what KPIs you should keep track of to ensure you are on track to hitting your goals. There are so many things you could track. Not just financial but, like the above example, could be hours worked, number of days you took the kids to school, had dinner with the family, etc.

To summarise then, if you want to grow your business, you need to set yourself meaningful a business goal. You need to monitor your progress towards achieving those goals, you need to understand what you should be monitoring and you need an amazing accountant in your corner, helping you every step of the way.

Can Kilby Fox help?

Absolutely!

If you’d like to understand how we can help you grow your business and achieve your goals, please get in touch.

Just call on 01604 662670 or email [email protected]

The School Holidays can be a very expensive time for families.

As a father of 3 young children, I know how difficult it can be to keep children entertained when they’re not at school.

Now, I’m certainly not the Number 1 Dad in the World (no matter what my Father’s Day mug tells me!), however I do have experience in helping businesses increase their profits and extract cash from their businesses as tax efficiently as possible, and these skills do transfer over to our personal lives.

So, in this blog, I wanted to share a few tips on how to make the School Holidays less stressful on the bank balance.

1. Understand where your money is currently going

The first step for improving anything is to first understand where you are now. You can do this using a spreadsheet, or software if you’re feeling fancy. List out all of your bank transactions for the past 6 months or so. Then, categorise each into columns. So, you might have a column for shopping, entertainment packages, takeaways, eating and drinking out, fuel, car payments, Children’s Birthday presents, etc, etc.

2. What can you immediately cut out?

Do you really need 3 takeaways a week? Could you replace these with cheaper planned meals that you enjoy. (The old ‘Fake Away’).

Can you reduce your shopping bill by planning your meals so you only buy what you need?

Do you need Netflix, Prime, Now TV, Disney, as well as the full Sky Package including sports? Particularly with Sky Sports, is there enough on over the summer holiday that warrants the cost? I did this exercise recently and saved over £30 per month by cancelling a subscription that I took out to watch a single film, assuming I’d use it regularly. That film probably cost me over £100 in total!

3. Plan ahead

Ok, so now you’ve stripped out what you don’t need, project the new income and expenditure forward to see what your bank balance would look like in 1, 2, 6, 12 months’ time.

I know this blog is aimed specifically at the school holidays, but let yourself get excited by how much extra money you’d have in 12 months’ time. What could you do with that spare cash if you follow through with this? This visualisation will help to keep you on track.

4. Plan the days and weeks

This is where I need to channel my inner Gem (my wife). She is our in-house organiser and is an expert in keeping our children entertained with low-cost activities.

Try to have a plan for each week. Use a calendar so you can clearly see what you’ve got planned and where you need to think of things to do.

Come up with a list of things you can do that are low cost but are enjoyable and take up a decent chunk of the day. Write these down so you can refer to them. You shouldn’t need to spend a lot of money to keep children entertained.

Long walks to new or favourite places, country parks, etc are great ways to have a day out with minimal costs. My girls like going to garden centres, specifically if they have fish, so we can have a trip out to a garden centre, making sure we try out all of the swinging garden chairs, and then have a coffee (soft drink for them). If you’re like a good friend of mine, you might even challenge your children to put their heads into the water fountains…

Meet up with friends at parks. Hopefully the kids will sort themselves out while you can have some adult conversation.

Spread the more costly days, if there are any, out over the holiday. Spread them out so there is always something to look forward to. Plan the cost and put that into your new spreadsheet forecast. Make sure you can afford to do each activity. If not, find something else to do. Don’t over stretch.

5. Make sure you take time for you.

Plan in down time. Its tiring to constantly be doing stuff. Sometimes you need a break, so make sure you plan those days in too. Have indoor activities in your back pocket for if (when) your children get restless. Again, make a list of these activities – crafting, drawing – anything that you can set up and leave them to get on with it.

As I said, I’m no expert on being a parent, but hopefully the first few tips will help to create some extra cash to help over the School Holidays. If you take anything from the last couple of tips, amazing!

If you’d like to explore how I help my clients to generate more profits, and take more money out of their businesses, as tax efficiently as possible, get in touch.

Just call on 01604 662670 or email [email protected]

Is your accountant undercharging you?

I come across loads of business owners who are super proud that:

‘My accountant only charges me X!’,
‘I don’t pay my accountant, I just do a bit of work for him here and there and we offset.’
‘We have our monthly meeting over lunch, which I pay for, so my accountant doesn’t charge me for that!’ 🤦🏼‍♂️

I know you think you’re getting a good deal. But I’d like to challenge whether it is actually a good thing.

Before I became a Partner at Kilby Fox, I was a manager at a larger firm. One of the newer partners kept lowballing to get clients through the door, presumably under pressure to grow their client base.

What this meant though was that the staff working on those jobs ended up hating those clients. They’d never met the actual business owners but working on those jobs meant massive time pressures, having to rush the work because the fee couldn’t handle the time required to complete. Then, inevitably, they’d get it in the ear for going over budget.

Another post worth a read: Why you should absolutely like your accountant! (not in a weird way)

Do you think the people working on those jobs ever gave it their best? It wasn’t their fault. The fee (and the environment) made it impossible.

As a manager, do you think I prioritised that work over the higher paying clients? Of course not. If you’re spending good money on your accountant, you should expect the best service. So the opposite should run true also. You’re going to get put at the bottom of the pile.

So if you know you’re paying your accountant too little, don’t expect to be a high priority for them. Don’t expect them to be overly diligent, trying to identify every tax saving possible, don’t expect them to include tax planning within that fee.

And most of all, if your accountant doesn’t know how to price their services profitably, in a way that enables them to give you the best service possible, don’t expect them to be able to help you grow your business.

Think about it.

Now, if you identify with the above, and are ready to take your business to the next level, I’m right here! 🙋🏼‍♂️

Your balance sheet is a Report that will be in your annual accounts. This is likely the only time it will be presented to you as there is generally a lot less emphasis on it from a day-today business running perspective.

In a nut shell, your Balance Sheet will tell you what your business owns and what it owes, at any point in time. Where as your Profit and Loss Account tells a story, your Balance Sheet is only ever a snap shot of a specific moment in time.

I will go into more detail, below, around what each section of your balance sheet tells you, and how you can use this report on a regular basis to help you improve your business.

Fixed Assets (sometimes called non-current assets)

This will be home to the larger assets that your business owns. Plant and machinery, computer equipment, vehicles, property, etc. will all be found here.

These assets will be depreciated year on year (whether you are aware of this or not) to reflect their current values. This level of depreciation should be discussed with you to ensure you are happy it is fair, but more often than not, your accountant will use pretty standard rates of deprecation, based on their experience.

So, the number on your balance sheet for Fixed Assets should represent the current value of the assets your business owns, not what you originally paid for them.

Oftentimes, business owners get confused when they buy a new item of plant and machinery as they immediately believe it will reduce their profit. The new asset does not impact the P&L at all, as it goes to the balance sheet. However, various tax reliefs are generally available to ensure your tax liability is reduced accordingly.

Current Assets

Current assets contain the value of your stock, your cash in bank and in hand, and your debtors (amounts owed to you).

They are called ‘current’ assets because they can (in theory) quickly be turned into cash (if they are not cash already).

Most business owners will have a keen eye on their bank balance to make sure it is going in the right direction and to make sure they can pay their staff and suppliers.

However, it is also important for business owns to keep track of their stock and debtor levels.

A business that is holding too much stock runs the risk of that stock losing its value due to obsolescence (think large amounts of tech stock which gets superseded with newer models regularly coming out), or the stock going out of date (depending on the type of stock – food and drink, for example).

Stock management becomes more important as your business grows and you should consider investing in robust stock management software to help you stay on top of this. Decent stock systems can have reorder levels automated so they automatically order more of something when the total on hand falls below a certain amount.

Cash is the lifeblood of any business. Having slow paying customers can destroy a business. Make sure you monitor your debtors regularly to make sure your invoices are being paid on time. If not, it may be time to get someone in to help you with credit control, chasing invoices as they fall due for payment.

It is also important to ensure your invoices are as easy as possible for you customers to make the payment. There are numerous payment options out there that integrate with your accounting software to add a ‘Pay Now’ button to your electric invoice.

Current liabilities

Similarly, to current assets, current liabilities are described as current because they will result in a fairly quick cash outflow.

Unpaid supplier invoices will be found here, along with VAT, PAYE, Corporation Tax, etc. You should also find your Director’s Loan Account balance here (if everything is as it should be). See my blog – ‘What is a Directors Loan Account?’ for more information on this.

It is important to monitor who you owe money to. That last thing your business needs is a ‘Stop’ on a supplier account because their recent invoices haven’t been paid. This could cause delays to your production which would then affect your income levels.

You should also try to make use of supplier credit terms. If a supplier has 30-day terms, rather than paying them immediately, think about using the 30 days and holding onto the cash for a bit longer, in case something super urgent comes up. You never know what’s around the corner.

Long term liabilities (non-current liabilities)

Here you will usually find business loans which may have a repayment term in excess of 1 year.

Where your business has a loan, it is important to split out what is due within 1 year from what is due in more than 1 year. This is because users of your accounts (such as banks) may look at your ‘net current assets’ to make sure that your current assets are in excess of your current liabilities. This gives them confidence that your business has enough ‘liquid’ assets to cover the shorter-term liabilities. So, your business doesn’t run out of cash and have to close.

So, make sure your accounts don’t have the whole loan dumped in current assets, if it is not all repayable within a year, as it makes it look like your business cannot afford to cover its short term debts.

Equity (Shareholders funds)

This is the final section of the Balance Sheet.

Here you will find the company’s share capital, and the Retained Earnings (accumulated profits less accumulated losses). You may also find Share Premium here and other reserves, but these are less common.

The main thing to look at here is the Retained Earnings. Dividends can only be paid out of ‘Distributable Reserves’ which should equal this figure. If the Retained Earnings are negative, your company cannot pay you a dividend.

Sometimes a company might make a profit in a financial year and the director wants to pay a dividend. Unfortunately, if your business made losses in the previous years, you may need to generate more profit, to wipe out those losses, before you can then think about dividends.

Now that you know what your Balance Sheet is telling you, you can begin to make better decisions to grow your business and gain control of your cash. If you would like regular management reports based on up-to-date information, please get in touch.

Just call on 01604 662670 or email [email protected]

I have many clients whom I send monthly Profit and Loss reports to. When I send these, I accompany it with some narrative around what this means in terms of business tax and a suggestion of what should be put to one side for that particular month.

I also incorporate some VAT liability planning, by looking at what the VAT Return looks like for the period to date, again, to try to prepare the business owner for the upcoming VAT payment due.

I also look at what the director has drawn out of the business, how that sits with our initial remuneration plan, and what that means from a personal tax perspective, and what impact that might have on their self-assessment liability.

However, I’m certain that there are many business owners who look at their accounts and don’t really know what they’re looking at or what they should be paying closer attention to.

So, the purpose of this blog is to help you get better at reading a Profit and Loss, so you know what to look out for to help you grow a successful business.

Turnover

This is probably the first thing that any business owner looks at. Turnover is your sales. What sales have you made this month? Has it been a good month?

This is the best metric for understanding your business growth. If your turnover is higher than it was previously, your business is probably growing.

Remember that this figure represents invoices raised. In many businesses, the cash inflow will follow at a later date. So, make sure that you understand that an increase in sales doesn’t necessarily equal more cash in the bank.

Depending on where your business is in its life cycle, you may want to keep an eye on your rolling 12-month turnover. Once this figure goes over £85,000, you may need to register for VAT and it is important that you plan for that and understand what it means to your profitability and cash flow.

Gross Profit

Your gross profit is the profit left after your ‘directly attributable’ costs. In your accounts, these costs would be called ‘Cost of Sales’. It basically tells you how much it directly costs you to earn each pound, and therefore what you have left. So, for example, if your business manufactures wooden tables, the direct costs would be the wood, glue, screws, etc. It should also include wages for production staff, as you need to pay these people if you want them to produce. Your gross profit would be what’s left after these costs.

Costs that are fixed (also called overheads) do not belong here as they are incurred regardless of the levels of production. Examples of these costs are wages for administrative staff, utilities, insurance, etc. These costs are shown later on in the Profit and Loss report.

You should monitor your Gross Profit % (Gross Profit divided by turnover) as reductions in this % could indicate your businesses costs are increasing at a greater rate than your sales. For example, this could show that you haven’t been forwarding material price increases onto your customers.

The easiest way to increase overall profitability is to focus on increasing your Gross Profit:

• Are you able to increase your selling price?
• Can you get better discounts on materials?
• Can you improve your efficiencies to decrease your man hours?

Overheads

As mentioned above, there will be a large section in your accounts relating to overheads. These are costs that are (generally) fixed, regardless of the level of production in your business.

These costs would include rent, rates, utilities, insurance, repairs to property and machinery, accountancy, motor expenses, travelling and subsistence, software costs, etc.

As discussed in a previous blog – ‘Do you know when you’ll break even?’, understanding how much your business spends on these fixed costs will help you to determine how many sales you need to make (taking into account what Gross Profit is earned on each sale) to cover your fixed costs.

These costs should be reviewed regularly, comparing month on month, to identify any specific increases and to understand why the cost may have increased and what could be done to reduce them.

Business owners often find old software subscriptions they no longer use but which they are paying for month on month. They may decide, following a review, that they are paying for various marketing costs which aren’t making the impact they had hoped for. Perhaps they need to sit down and re-evaluate their marketing strategy.

I like to present my clients with a month-by-month Profit and Loss report, showing the last 12 months. This way, they can see these costs side by side. This makes it easier to see variances which we can investigate sooner, rather than waiting until the end of the year.

Net Profit

Net profit is the most important figure on your Profit and Loss. This is the profit left after all costs are taken into account.

It is the figure used as the basis for your tax calculations. It is also this figure that, if you are a Limited Company, determined the level of dividends you can declare.

They say that turnover is vanity, profit is sanity. I see many multi-million pound turnover companies who make less net profit than someone turning over a few hundred thousand.

Make sure your focus is on your profitability. If you take on a new contract, but your profit doesn’t increase in line with the additional turnover, you need to understand what extra costs have been incurred as a result. It could be for a good reason – the new contract has meant that you need to take on an extra member of your administrative team. You need to be aware of the reasons though. Does it make financial sense to take on that contract?

Don’t end up being a busy fool!

Now you know what your Profit and Loss Account is telling you, you can make better decisions to grow your business. If you would like regular management reports based on up-to-date information, please get in touch.

Just call on 01604 662670 or email [email protected]