3rd October 20111

Dear

Survive or Prosper - Part 4: Increase profits!  Make sure you recover all your costs in your charge out rate.

With the relatively strong Euro, competing demand from emerging economies for raw materials and weak demand in the UK, business margins are under pressure from both supplier costs and the limited ability to raise prices. In order to survive, businesses across the UK need to improve their margins and therefore their cash flow. In these circumstances marketing initiatives may take time to have impact, if any, and will also have a cost to the business. Likewise, negotiating lower supply prices may either not be possible or will have a negative effect on cash flow (e.g. a small discount but only at the expense of faster payment).

In these circumstances business need to work smarter and develop other strategies to improve margins and cash flow – and this month we are looking at a range of initiatives that have little or no cost to implement and can have an immediate positive impact on margins and cash flow.

Many businesses use both materials and labour to create a product or service that is sold to other businesses or direct to consumers. E.g. garages, manufacturers of windows and doors, bakers, etc. However the amount of materials and labour costs that are used to create each product / service is not always measured accurately.

The first step is to recognise all the component costs and allocate them to the different products and / or services to which they apply. By doing this a much more accurate picture can be built up of the profitability (or otherwise) of each product or service and also of individual customer or client groups.

Profit improvement benefits

• Gross margin % by product /service.

In the current trading environment many businesses find it difficult to raises prices and reduce supplier costs, an understanding of the various product /service gross margins can help to increase net profit. Knowing which are highest and lowest gross margin products / services means one can increase profits and measure the impact by altering the product mix. The impact is immediate. The cost is minimal, most likely nothing more than an administrative change to the selling process. More fundamentally, the business owner can measure the impact and feel more in control of the business going forward.

• Recovery of direct labour costs

Assuming a business might have £200k of direct labour costs (excluding overhead salaries) there is always the question of how much is being recovered through current pricing to clients? Many business owners are surprised how low this figure can be. In one example a client was only recovering 80% of their direct labour costs. Setting a target of 90% meant recovering another £20k of costs which flowed straight to the bottom line. The impact was measurable, immediate and no cost. Truly an example of smarter working.

• Allocation of overhead costs

By combining the creation of gross margin by product / service with allocation of overheads (space, staff, other expenses) by product /service a number of key benefits will result. Profit centres can be created which allow business owners to understand how a product or service contributes to net profits. Efficiency changes can be measured and targets set. A key management tool is in place to improve the profitability of the business. 

There are of course many different ways in which overhead costs can be allocated. The most obvious is that to which an overhead directly relates- but what about the costs of running the accounts or HR or Health and Safety? In some cases general overheads are divided in accordance with the proportion of the salary bill that each profit centre has and in others the percentage of total spaced occupied by that part of the business. The important thing is that so far as possible all costs are taken into account when setting prices!

• Pricing

A detailed analysis of gross margin avoids the misleading definition in most annual accounts which only takes into account materials. This approach calculates the true gross margin by including materials but also direct labour costs. This could be manufacturing, servicing and installation labour.

One benefit is that the business obtains a more accurate calculation of their GM% which is much lower than they have been lead to expect. This is a particular issue if pricing decisions are being based on the inflated gross margin figure. It may mean one is under pricing and wasting profit. A more complex issue is that pricing based on an inflated GM% means that a lower net profit figure results (because one thinks that the GM% is higher than it is).

By basing pricing on the true GM% one may still find that competitive pressures mean prices cannot be increased that much more. However, if that is the case and the net profit margin is too low for the sector / expectation, then this highlights the need to address internal process issues and set targets to become more profitable.

Many people in business understand intuitively how their businesses work but become blinded by jargon and numbers when they are provided with a set of accounts. For some straightforward explanations please visit www.SatNav4Business.com

where you can find Fact Sheets entitled ”Understanding Profit and Loss Accounts”, “Understanding Balance Sheets”, “ Calculating Breakeven” and “Pricing your Product or Service”.

If you have any questions, want to talk through your ideas, get a second opinion regarding your borrowing proposal or business plan, or want some help in looking at any of the above issues please call SatNav4Business on 0845 468 1 468, email success@SatNav4Business.com
or complete the contact form at www.SatNav4Busienss.com

As ever we provide an initial meeting (virtual or face to face depending on timing etc) of an hour for Newsletter readers- thirty minutes for everyone else.

Jeremy Webb & Steve Mathews

Tip of the Month

Many people in business recognise the potential benefits of using Social Media to promote it but either do not know where to start or alternatively take the view that they do not have the time- or often just do not like writing.

SatNav4Business can now help by providing all the training needed, including setting up the appropriate accounts for Blog, Twitter etc and can even do the writing for you too. You might wish to pick the topics or issues but then you can leave it to a professional writer to produce the copy and even to up load this on your behalf.

Much easier and more effective than staring at that blank sheet of paper!!!

Contact Jeremy Webb to find out more!

If you have any questions, want to talk through your ideas, or want some help in looking at any of the above issues please call SatNav4Business on 0845 468 1 468, email success@SatNav4Business.com

or complete the contact form at www.SatNav4Business.com

 News from SatNav4Business

Ecademy Boardrooms arrive in Leatherhead

Running a business can be a lonely, frustrating, even overwhelming experience. Imagine having your own Board of Directors, available to discuss your concerns, challenge your fears and share experience without having to give them a share in the business. Imagine your Ecademy Boardroom, filled with people who share in the highs and lows of each other’s journey and provide a level of support that means you are no longer alone or overwhelmed and you are free to move forward.

The key objective of Ecademy Boardrooms is to provide a safe place to grow and develop ourselves and our businesses with accountability, structure and support.

Your business… Your Boardroom… – each Boardroom meets once a month, in confidential private Ecademy Boardroom meetings

Grow your business – practical implementable advice and guidance from up to 12 experienced professionals – for less than the cost of the time from any one of them

Support and Development – for you and for your peers

Find, register and subscribe to a Boardroom by registering for membership here >

Our vision

Through Ecademy Boardrooms we will create a community of business owners that thrive and grow together through a set of shared values, where friendship and support is the basis for the birth of new business and where existing businesses become stronger, more innovative and provide the owner with emotional and financial satisfaction.

Jeremy Webb will be chairing this new Boardroom which will meet for the first time in November here what he has to say about Boardrooms- click on this link for his YouTube video: www.youtube.com/watch?v=UILqc1pOdPg

If you would like to chat through your thoughts, call us for a free meeting or call of up to one hour for Newsletter readers (usually up to half an hour) on 0845 468 1 468 or email us on: jeremy.webb@SatNav4Business.com , jerry.irving@SatNav4Business.com  or steve.mathews@SatNav4Business.com

We hope to see or hear from you soon

News from SatNav4Business

Jeremy, Jerry and Steve

Wherever you are on your business journey SatNav4Business can help you to arrive at your chosen destination!

From free downloads. Fact sheets, guides, reviews and online support to workshops and in depth face to face bespoke solutions, the choice is YOURS... 

Dates for the Diary

Merton Chamber are running a Finance Awareness Week starting on 4^th October including: Cashflow Workshop, Networking Lunch and Learn, Introduction to Raising Finance and have a number of other events on too. Find out more and book at www.mertonchamber.co.uk

Richmond Chamber Autumn Breakfast Wednesday 5^th October 7.30-9.00 at Pissarro, Corney Reach Way, London W4 2UG

Join Chamber members at this Chiswick riverside restaurant for a sumptuous cooked braekfast including smoked salmon and scrambled eggs on a toasted muffin. Ticket prices vary, check it out at www.richmondchamberofcommerce.co.uk

Surrey Chambers Surrey-Meet the Venues Wednesday 5^th October 2011 16.00-19.00 at Denbies Wine Estate, London Road, Dorking RH5 6AA (pop in when it's convenient for you)

This event is designed to showcase the top venues in and around Surrey. With over 30 venues represented, visitors will be able to get a really good idea of the location which would suit their corporate or private functions. Following the success of last year’s inaugural event when 32 venues and over 120 delegates attended, in partnership with Conference Desk Guildford, we are bringing together Surrey’s top venues, all under one roof again!

REASONS TO VISIT...

• Free networking with exhibitors and other visitors
• Hear from the Surrey 2012 team about opportunities surrounding the games.
• Opportunity to win fabulous prizes from each of the venues exhibiting
• Find out what Surrey’s best venues have to offer
• See what Denbies Wine Estate and the beautiful surrounding of the largest vineyard in the UK has to offer

Cost: Free – book at: www.surrey-chambers.co.uk.  booking essential for catering purposes.

Kingston Chamber Networking Breakfast Thursday 6^th October 08.00-09.30 at John Lewis “The Place to Eat” restaurant on the first floor. Wood Street, Kingston KT1 1TE

Enjoy a hot cooked breakfast, meet new store MD, Jenny Tomley and hear about the digital switchover taking place in London next year, from Digital UK, sponsors of this breakfast.  Facilitated networking with a chance to promote your business.

Access via the riverside entrance.  For more information on the venue click here

Bring plenty of business cards and don’t miss this opportunity to network, meet new contacts and speak about your business.

Cost Members £12.50, Non Members £20.00 Book at: www.kingstonchamber.co.uk

Leatherhead Chamber Networking Breakfast Tuesday 11^th October 7.30 – 9.30 at Halcyon Offices, Thorncroft Manor, Thorncroft Drive, Dorking Road, Leatherhead KT22 8JB

All attendees are requested to use the main car park and meet in the “Pink Toast Cafe” Numbers are restricted so don’t delay-book today!

 Cost £10 Book at: www.leatherheadchamber.co.uk or email JohnHickey@b-and-c.co.uk

Surrey IoD Dorking PubHub Thursday 13^th October 18.00-20.00

The previous informal get togethers in Guildford, Dorking and Reigate have been most successful and the idea is to offer a monthly opportunity for informal networking across the branch catchment area. Come and unwind after work and enjoy a relaxing drink at the Red Bar and Lounge, 45 Dene Street, Dorking RH4 2DW. Free event, cash bar, no need to book.

Surrey IoD The Reality of Business Risk Breakfast Forum Friday 14^th October 7.30-10.00 Addington Palace, Gravel Hill, Addington Village, Surrey CR0 5BB followed by the Finance and Strategy Forum 10.15 – 11.15   
    

Running a business is both exciting and challenging. The balance between risk and reward is the very essence of business; one has to take risks in order to generate returns. However in a world of increasing complexity and uncertainty, directors must manage risk more rigorously than ever, especially when the threats are identifiable and manageable.

The IoD wants to guide members in their journey as directors to help companies develop practical risk management strategies based on case studies and facts.

This exclusive event for members and guests will feature exclusive presentations from Zurich Insurance and Berrymans Lace Mawer LLP that will inspire and inform companies on the very latest in managing risk. 

Other guest speakers will be The Right Honourable Charles Clark and Graeme Leach, Chief Economist of the IoD, who will give an overview of ‘Risk – The Big Picture’ that will look at where we are heading with regards to economic, demographic, political, short term versus long term, domestic versus global risk factors.

To book - please book online via the link on this page ensuring that you are logged in first, email Claire Fisher, Bookings Administrator or call her on 023 8026 6548

The Finance and Strategy Forum is for anyone who has an interest in the financial or commercial aspects of business and not just finance professionals. It is intended to be a good meeting of minds, much generous sharing of information, astute discussion of topics raised by participants and opportunities to enlarge your own network but without any big “sell” spoiling really good conversations.

Both events free of charge the first includes a full cooked breakfast. Book on 02380 266548 (members can also book at www.iod.com )

Leatherhead Chamber Quiz Night Friday 14^th October 19.00 for 19.30 start at Federation House, Highbury Drive, Leatherhead KT22 7UY

If you are a fountain of knowledge, enjoy a great night out, appreciate good company and want to raise vital money for a very worthy cause, enter your team right now in the Leatherhead Chamber Quiz Night!

Following a fantastic event last year hosted by the Police Federation, whose hospitality and impressive venue was appreciated by all; they have kindly invited us back on Friday 14 October from 7.00pm for a 7.30 start.

Get together a team of six from work or amongst your friends and enjoy a thoroughly entertaining evening! Tickets are only £10 a head and include a fish and chip supper.

This is a really popular event and raises vital resources for the Leatherhead Christmas Festival, so book early.  And remember, if you can't make up a full team of six, don't worry; we will hook you up with others on the night!

To book, please confirm by email to JohnHickey@b-and-c.co.uk  with your team name, number of members in your team, contact telephone number and email address.  Send your cheque payment, payable to 'The Leatherhead & District Chamber of Commerce' for the full amount (£10.00 per person) to John Hickey, Executive Director, Leatherhead & District Chamber of Commerce, c/o Buchanan & Curwen, Fairfield Works, Upper Fairfield Road, LEATHERHEAD, Surrey KT22 &HJ.

Surrey Chambers East Surrey Business Breakfast Tuesday 18^th October 08.30-09.30

Epsom Golf Club, Longdown Lane South, Epsom KT17 4JR. Come and join in at these regular informal breakfasts. There are no speakers, they are designed to give you a regular opportunity to meet and discuss local issues and widen your own network of customers, suppliers, neighbours and competitors. It’s a great way to start the day, meet new people and get well fed into the bargain

Members £14, Non Members £22 book at www.surrey-chambers.co.uk

Surrey Chambers Elmbridge Business Breakfast Club Thursday 20^th October 07.30-09.00

Hilton Hotel, Seven Hills Road South, Cobham KT11 1EW. Members £14, Non Members £22.

Book on line at www.surreychambers.co.uk- for further info see entry above for Epsom event.

Surrey IoD Guildford Breakfast Club Friday 28^th October 07.00 for 7.20-8.59

Guildford Cathedral Refectory The purpose of these breakfasts is to enable people to shape and lead their business or businesses better in all respects not only through their formal business role. Put another way these breakfast events exist and are structured to help people work on and not just in their business.There is always a discussion topic and this makes the 8.59 Club quite different from many other events. Try it and see! Members £15+VAT Non Members £25.00+VAT. Book on 02380 266548 (members can also book at www.iod.com )