Penny-pinching in small businesses can be very expensive

What shall I do?

Do you try to do everything in your business or do you confine yourself to the sharp end – your expertise?

Most of my work is to do with tax; that is advising people on it or writing about it. I am comfortable within my area. I have a lot of experience. I know how and where to do research to find the right answer.

I did not always know how to find the answer, though. I remember as a junior trainee being tasked with finding the answer to an unusual problem. I did not want to show my ignorance on the subject, and I had difficulty understanding the technical books in the library. After all, I was very wet behind the ears. So I relied on a book published by a well-known bank and aimed at the layperson – in other words, the amateur.

When I took my answer to my manager he told me that the issue was more complicated than I had thought, but not only that; the book’s author had actually got it all wrong! I was sent way with my tail between my legs to try again. I asked a more experienced colleague and she explained the difficult bits from the technical publication. I had my answer, which was different from the previous one because it was right.

Of course I hadn’t known what I was doing, because one of the worst mistakes we can make is in forgetting that we don’t know what we don’t know, or in other words if we are not strong on a subject our incomplete knowledge can cost us dear.

I am not great at sales and marketing. I look to others for advice because otherwise I would waste a lot of time and money. I subcontract quite a lot of work that I do not enjoy or that is not profitable to be done within my office. I have someone to help me with my business websites, though I like learning playing with others which will not cost me money commercially.

If we are inexperienced or simply do not have the time to do something to support, promote or oil the wheels of our business, it will cost us a lot more in sales than if we pay a specialist to help us.

What do you think?

The physics of getting expert help for your small business and for yourself

English: Schrödinger equation of quantum mecha...

Schrödinger equation of quantum mechanics (1927) by Yassine Mrabet. Image via Wikipedia

I have a confession. I like to know how everything works. I like to know how my cameras work, ancient though several are. I like to know how the universe works so I buy and try to read the books about quantum physics and string theory. That is why I recently purchased, upon recommendation by a friend, How to Teach Quantum Physics to Your Dog (not an affiliate link).

I have a general idea of how my car works. I have a manual for it. However, if anything goes wrong with it I wouldn’t have the first idea how to fix it other than changing a headlight bulb. Even that is really difficult with my car, just getting access past the air-con on one side and the water pump on the other.

So I have a guy who is a great mechanic. He knows how to fix cars. He has all the manuals. He has the computer and the software, and most of all he has the experience. That is worth a lot more than reading all the manuals. He is used to dealing with almost any problem and even if it is one he has never encountered in practice he will know where to look for guidance or who to talk to. He knows what he is doing whereas I couldn’t even start to fix my car.

Many of you may know I work with tax issues for businesses and in other areas as well as helping businesses with other problems they may have. Recently I was contacted via email by someone who had converted his private house into two flats or apartments he was selling and he was building two other flats in the garden, also to sell on. He wanted to know his tax situation.

In UK terms, this sounds a lot like property-developing liable to income tax on the profits, and I told him so, and offered my services.

He replied “What a load of old tosh! I can deal with HMRC myself thanx, thought you might know the answer.

By your account anyone who improves their own property could be treated as self-employed
property developers, what planet are you on? (Well, yes, if they do it with a view to short term profit)

I’ve worked out the answer for my self from the gov (Government) web site.”

I was polite in the face of this and suggested that even if he did not want to engage my services he needed to do some more research. He responded by suggesting that I was only after his money and was out to mislead him. He ended by calling me “Jonny Boy” which was no doubt supposed to be a put-down, though it was not an effective one to someone who was used to being called Jon-Boy in his youth after John-Boy in The Waltons.

If I started to take my car apart to find a problem I would soon get into trouble. If I tried to design a new brochure for my business I would make a mess of it because I haven’t the skill, the experience or the knowledge. If I tried to write my own tax compliance software or build my own website from scratch without having the right tools I would fail.

At a certain point there is no substitute for paid professional advice. We could read all the manuals in the world but without hands-on experience and good tutoring we will make a mess of things. Reading A Brief History of Time didn’t make me a cosmologist or astrophysicist and much of what I read in that book was very difficult to grasp.

I am still working on learning quantum physics as I mentioned. In the meantime I will leave the difficult stuff in my business that I can’t do for the specialists I bring in. Do you know when it is time to “phone a friend”?

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Let another brain take the strain

Local businesses

Image via Wikipedia

Are you good at everything? I’m not. I doubt many people are.

Do you like having to do everything in running your business: both the creative and the mundane?

Of course what is mundane to some is interesting grist to the mill for others. My business started very small and once upon a time I did everything myself. Now I only do the things I enjoy doing and which I find most rewarding, and the things I am best at.

It took me a while to realise that there were some tasks that were no fun at all, and that I wasn’t very good at some of the work my business was expected to produce. Also, I didn’t have time to do everything, so it seemed a good idea to concentrate on doing the fun stuff, the premium higher work. That didn’t mean that I stopped supplying the other services. It seemed logical to me to subcontract work to those who were better at it than me and who enjoyed doing what I didn’t.

Subcontracting has been great for my business. My subcontractors are good people, otherwise I wouldn’t use them. They deliver to me on time so that I can deliver to my clients, and I can negotiate a rate which gives them a steady income, but allows me to sell on a great service at a margin. That way everyone is happy and my business makes money without my having to do all the work.

You might ask why this system differs from having employees. Well, that would be a commitment, and in a small and growing business, I would not always have enough work to keep them on. They supply other businesses too and they have their own customers, so we are not tied to each other, but what we have between us is trust.

The business model I have suits a supplier of services. If my business made anything or was in retail, the concept wouldn’t work.

It is just no good trying to do everything yourself. I think all small businesses should use their networks (and build a network if they haven’t got one) because there is someone out there who can do for you what you think of as the boring bits, and you can profit from their expertise while concentrating on your favourite most profitable and valuable stuff. Your subcontractors can be your best referrers too.

Do you subcontract? If not, should you?

 

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Play to your strengths

Slices of French Bread
Image via Wikipedia

Especially when we start out in business we try to please every client or customer who comes along. I know because I have been in that position. However I have learned that we should concentrate on what we are best and most comfortable at doing, and on what is most profitable for us.

In our local village we have a very good baker. His bread has a considerable reputation. He knows pretty well how much bread his customers will buy each day. He opens at 7.30 and closes at 2.30. If you want the best choice of bread you need to get there earlier. Near closing-time nearly all the bread will be gone and sometimes he has sold out. There can be very little waste and therefore he must maximize his profit based on his resources.

He buys in a few things to sell on, notably sausages which he cooks. He produces some sausage rolls and Cornish pasties for the lunch market, but always sells out.

What doesn’t our baker sell? Fancy cakes! The reason is that although these would be high-cost, they are also labour-intensive. He or one of his staff would have to put in a lot of time on each cake. A lot of local baker-patisseries do make that error. They reduce their profit.

Bread is easy. It requires a lot of skill to get it just right and our baker has the skill. However he can produce a lot without spending much time on each individual loaf. He knows his business. He has got it right.

Like the baker I now do what is most profitable. There are some services which people ask me for which are not profitable. I buy them in through using sub-contractors. Those sub-contractors may even work directly with my clients. That is fine with me given we all have a good relationship. Sometimes my clients ask me for something totally out of my sphere, akin to the fancy cakes issue for the baker. I ensure I know just the right trusted business person to whom to give a referral. In that way I deliver everything a client wants without having to do it all myself and without having to do things which are difficult for my business, being too time-consuming and not profitable.

Do you subcontract or know when to pass on work? Doesn’t it give great piece of mind and allow you to make the best use of your time and effort?

© Jon Stow 2010

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