It reveals that many directors of smaller and medium businesses are often no better off or are even worse off than in previous years. The average director’s pay in 2011 was:

-  £82k in businesses with turnover up to £5 million: 15% less than 2010 (and 6% down since 2007)

-  £129k in businesses in the next band up to £50 million:  3% more than 2010

-  £174k in the £50 million to £500 million band: 2% more than 2010

Other findings are that:

-  27% of executive directors had a pay freeze in 2011

-  A further 7% took a pay cut

-  The largest impact has been on bosses of small companies: two and a half times as many as those in large companies (61%) have seen their pay frozen.

-  Executive directors in the south east can earn about 7% more than their counterparts in the West Midlands (£80,000 compared with £75,030)

The survey also asked about working hours:

-  36% of directors are working over 50 hours a week

-  26% of them are working over 55 hours

-  41% of directors are entitled to 30 days’ holiday a year but only 11% actually take 30 days

All this is in sharp contrast to the stories about FTSE 100 directors with their 49% increases, and shows just how big a wedge is being driven between the wealthiest and the majority.

Note that the directors surveyed are not necessarily owners of the business. It is important that director/shareholders distinguish between their pay for the work that they do and their profit share as a shareholder – especially for SMEs.

For details of the source of the report, see the Croner website.

How have your pay and profits changed in the last year?

There are lots of reasons for this, but the main one is that no one wants to buy it! The reason for that is usually that there is too much dependence on the business owner. To replace her/his input would require a salary that would eat up most of the profits, leaving no return on investment for the buyer.

Michael Gerber in his famous book The E-Myth – Why Most Small Businesses Don’t Work and What To Do About It sets out clearly how to tackle this over-owner-dependency problem. The main solution is to develop systems and empower the team to operate them. This can be impossible to do because it involves changing habits and engrained practices.

What is missing in these situations is the motivation for the employees to make changes, i.e. the WIIFM question (What’s in it for me?).

I believe that empowerment of the team by sharing ownership of the business with them is the best solution to this problem. As part of the process, it may also be possible to provide an exit route for the current owners.

At my accountancy firm, Kirkpatrick & Hopes (K&H), more than one-third of the shares are owned by the rest of the team, and everyone has at least one share. For the last couple of years we have been members of the Employee Ownership Association (EOA), whose flagship member is John Lewis. K&H has rather flatteringly been called ‘the John Lewis of Accountants’!

Here is a summary of some of the main benefits to the business owner of employee ownership (EO):

1. It can provide an alternative exit route for the present owners, e.g. with employees buying in with cash or sacrificing future income to buy out the shares.

2. The business should be more profitable with more motivated employees. EO companies make more money, according to all the research.

3. The combination of more profits and more empowered employees means that the company should be easier to sell.

4. In EO companies, it is also common to share information about the business: profits, sales, new business won etc. This alone can be hugely motivating to the team and help marginalise and get rid of uncommitted employees, making it a much better place to work.

5. There can be significant tax benefits, e.g. using share schemes to award tax-free shares and paying employee/shareholders in dividends that are free of National Insurance.

6. The EOA website has more proof of the benefits of EO.

Of course, as an exit strategy, nothing beats getting a big fat cheque and retiring to the beach (even if you get bored after a few days!), but as a plan B or as a stepping stone to a sale, EO is well worth exploring.

If you’d like to know more about how we have made employee ownership work at Kirkpatrick & Hopes or our Build to Sell planning process, please call me on 07977 074492 or email andrewg@kandh.co.uk.

Is that true?

The logic is that:

• Barriers to entry for service business are lower. Generally, they start up their ’business’ selling their own time and working from home. There is no need for stocking up, premises, staff and other things that require cash investment, which in turn may need business plans to be drawn up and a much more professional approach to be taken. 
• Because the service business owner is, and often stays as, the main fee-earner, they are too close to the day-to-day workings of the business and the clients to make objective decisions. In my experience working with clients, this ‘blind spot’ problem is most damaging in setting the pricing policy.
• The right-brain (creative, emotional) tendency of service business people makes them less analytical than their left-brain counterparts.

All this can make service businesses easy prey for acquirers, and the fact that there are far more offers to such businesses (in North America anyway) would suggest that this is true.

To protect against this, service business owners should take the following steps, according to John Warrillow:

• Calculate the value of your company using the same methodology acquirers use
• Bump up your multiple
• Create a reliable stream of recurring revenue
• Reduce your reliance on a few key clients
• ‘Productise’ your service
• Reward and retain key employees without making them a partner
• Eliminate the need to respond to a Request for Proposal (RFP)
• Increase the number and quality of your referrals
• Spot and interpret the second most important sentence in an offer to buy your company
• Shorten the length and importance of an ‘earn-out’
• Avoid the biggest mistake service firm owners make when getting their business ready to sell
• Structure agreements to include the one sentence you need in order to sell your business for a premium

The full article is here.

Do you agree with John? My dealings over the years with ‘professional’ business owners (accountants, solicitors, surveyors) generally supports this, but please post a comment to tell me what you think.

The Business Development Workshop is a very informal, half-day training session aimed at ambitious owners of small businesses, and their advisors, who want to know how to:

• understand and use accounts
• save tax
• work out their growth potential
• apply E-Myth principles (by watching a video of Michael Gerber)

It is divided into four sections, led by our directors.

Session 1  Interpreting the Numbers – Pauline Williamson
Most business owners do not understand the information in their accounts, according to national research by AVN. At K&H, we want to ensure that our clients make the most of their accounts, and can access this valuable information.

We will review a set of real accounts and help you to see the problems the business will face if it makes no changes.

Session 2 Taxability – Andrew Scott
One of our missions is to help our clients to pay less tax. We take you through a process of identifying your tax strengths and weaknesses and give you tips to ensure you pay the minimum tax possible.

Session 3 Simple Stuff That Works – Andrew Gray
SSTW is an interactive, multimedia software tool that helps business owners grow their sales and profits. It features video clips of real business owners explaining how they have used a range of practical ideas and learned new skills to help them grow and develop their businesses.

Session 4 Why most small businesses don’t work and what to do about it? – Andrew Gray
This session is based on the seven-point business development process developed by Michael Gerber, author of The E-Myth Revisited.

It gives you an opportunity to step back from the day-to-day running of your business and look at the big picture. We will watch a video of Gerber sharing his views about what being in business really means, we examine your role as a business owner, and provide insights into how your business can give you more life.

The cost for each person attending is £99 plus VAT. However, K&H clients can attend for free and some free places are available to others as part of our support of the National Campaign.

To book a place on the next Business Development Workshop, email us or call 0118 923 5800.

Future dates for 2010 are:

• Wednesday 24 November

All Workshops will run from 9.30am to 1.00pm and will be held at our offices in Theale.

I can highly recommend everything on the list (including a K&H Goal Getter strategic planning day for item 4, of course) EXCEPT for item 3, which you should only get if you are very disciplined with your time.

Here’s the list:

http://www.e-myth.com/cs/user/print/post/top-10-holiday-gifts-for-a-technician

See what you think.

This article from Skillpath has some tips you can put to use straightaway, the most important I believe being the first one. I have always believed if you don’t measure it you can’t improve it. After I carried out an exercise similar to that suggested, of logging where I spent my time, it was frightening to realise how inefficient I was. I hadn’t realised exactly how much of my time was spent looking at emails (sometimes several times over without actually dealing them), planning what to do (rather than just doing it!) and speaking to people on unimportant matters. As also suggested it is very powerful to keep continually asking yourself, ‘Why am I doing this task?’, ‘Will this help me achieve my ultimate goal?’. I am now much more focused on doing the right things.

If you aren’t already doing this, why not try it and let me know how you get on? Having taken on board a similar message to this some time ago it has certainly made a difference to me.

You can contact me on paulinew@kandh.co.uk or my direct line 0118 923 5817

Read the full article.

Highlights are

• New tax rate of 50% for earnings above £150,000 starting from 6 April 2010. The tax payable on dividends at this level will increase from the current 25% to 36.11%

• Personal allowances to be gradually reduced for earnings of more than £100,000 per year. The personal allowance is reduced by £1 for every £2 of income above £100,000

• Corporation tax small companies rate to remain at 21% and main rate at 28%, the planned increase has been abandoned.

• In addition to the £50,000 investment allowance for capital allowances a new first year allowance has been introduced for expenditure over £50,000. This will be 40% for the coming twelve months.

• The three year corporation tax loss carry back to apply to periods ending up to 23 November 2010.

• ISA limits increased £10,200 (cash £5100) for over 50’s now and for everybody else from next tax year

• Naming and shaming of tax defaulters (people and companies who try to evade ,more than £25,000 in tax)

• Company car tax changes again from next year, the £80,000 price cap has been abolished. This will be a blow to the luxury car market.

• Changes to tax relief on car lease payments on new agreements from 1.4.2009

• New  fuel scale rates for VAT

• VAT registration threshold increased to £68,000

• VAT goes back to 17.5% on 1^st January 2010

• Increased penalties for late tax returns from 6 April 2010.

You will find all of the budget information broken down into relevant headings on the Directgov website.

For our clients, we will of course be reviewing the relevance of these changes on an individual basis, either at our next accounts review meeting or before if necessary.

Please contact either Andy Scott or Susan Kemish if you have any questions about this.

• adopt an “abundance mentality” and give them your blessing
• see this as a direct threat to the business you have created and your financial wellbeing.

Which you choose will depend on your attitude to a large extent, but it should also depend on the nature of your business and how unique it is. Some businesses depend on one or two very specific systems (usually automated operational systems, such as websites) where the Intellectual Property (IP) rights must be protected legally. But, for the vast majority of businesses, success only comes as a result of having many diverse systems in every area of the business including marketing, finances and leadership AND having the commitment to use them consistently. In practise, it takes far more than just having a knowledge of systems to actually use them to create a great business.

To protect your business, here are some Actions to take:

1. make sure that you secure legally any IP rights that you can – especially operational systems.
2. don’t let the fear of theft stop you continuing to systemise and innovate, especially in branding and customer care, which will always be the best protection from the competition.
3. make sure to recruit the right people who will not steal your business.
4. share the rewards of your business with the team and make it their business too, so they don’t have any need to go and set up on their own.

Read more from the E-Myth blog that inspired this blog posting. Please tell me what you think about this subject. PS: If you’d like to see the Gerber video, please email us. The first two people to do so can have a free place at the next Business Development Workshop.

The objection I often hear is that “our business can’t be systemised because every situation is unique/my people won’t do it that way/I need to apply professional judgment/it is dehumanising etc etc”. The worst culprits for using this objection are “professionals” such as accountants!

On the E-Myth blog is the story of how Great Ormond Street Hospital has learned from Formula 1 motor racing teams how to streamline (systemise) the patient transfer procedure from the operating room to the intensive care unit.

In a related article there is a quote that sums it up for me:

As Nigel Stepney, Ferrari’s then technical manager, asserts: “It’s not about having the best people and just putting them together. It’s about a group of people who can work as a team.” Find out more.

To see exactly how they do this, here are the slides with the patient handover system: Handover Training Slides (This needs to be opened as read only).

I hope this serves to illustrate that everyone including the most technically skilled professionals can benefit from systemisation. Also it is not just about making more money, it can also improve lives directly and increase the chances of survival, as the above example illustrates.

Do you agree? Please let me know.

The most common reason that clients give me for not working ON their businesses (eg not doing the strategic work, systemising etc) is that they are too busy. Too busy working IN the business (eg managing people, selling, doing the accounts, making the tea etc etc). Admittedly, the size of the task is huge and as daunting as eating the proverbial elephant.

The clients in question are often working 60 to 70 hours a week so their reason is a genuine one. However, I know from my own experience that it is always possible to make progress on the strategic stuff IF you manage your time well.

A recent blog on the E-Myth website gives some thoughts on how to tackle this problem under these headings:

• You Can’t Hit a Target if you’re Aiming at the Sky
• Focus on the Results, Not on the Work
• Approach that Elephant Strategically

The most time consuming “working ON” area is systemisation for most businesses. Remember that a fully systemised business is worth 87% more than an averagely systemised business, so tackling this problem has to be worthwhile.

Have a look at the whole article and please do let me know if you think this will help you eat your elephant.