Friday, 1 April 2016

How to calculate hourly billing rates



All time based businesses should understand the hourly cost of their employees.When bidding for new clients or reviewing client profitability knowing the break even hourly cost is the bottom line below which you can’t make a profit. 

These are the raw elements:
  • Cost of employment
  • Overheads
  • Time
  • Profit
1. Cost of employment

Building up your hourly (or daily rates) starts with the individual cost of employing each member of staff delivering work on behalf of clients. These costs should include the whole package: gross salary, employer’s national insurance, the company’s pension contribution, health insurance, annualised value of a car, life insurance etc.

2. Overheads
The billable rates need to take into account your company’s overhead costs. In this context overheads should include all costs; don’t forget to include depreciation and interest. The cost of employing staff who don’t deliver client work, for example, marketing, finance and HR should be included in overhead.You need to apportion the total overhead across all of the staff who deliver client work, person by person. Do this on a simple pro rata headcount basis or pro rata to salary.

3. Time

The cost of employment and overheads can only be recovered by your company from hours spent delivering to clients. For each employee you need to calculate the realistically expected number of billable hours (or days) per annum. This means deducting from the total annual working hours holidays, bank holidays, time for training, non-client administration, new business generation and an allowance for sickness. By dividing the total cost of employment and overhead by person by the time available for delivering to clients you will calculate the hourly cost you need to recover to break even as a business.

4. Profits

You should now add an element for profit to the break even hourly rate. If your profit mark up target is 20% then add 20% to the total of the cost of employment and overheads to calculate your hourly billing rate. Round the answer up. Obviously compare with market rates.
5. Banding

It is common for businesses to use banded hourly rates rather than specific rates for each person. Once you have calculated the specific rates you will be able to band these by employee level, junior, assistant manager, manager etc.  If you do this, it is also common practice to band the cost rates. Banding enables you to ensure that individuals are less able to make salary comparisons across their peers.

As a first step, why not pick the phone up and call John or email him and arrange to meet up. John's website is: http://www.nomizon.co.uk His credentials: http://www.linkedin.com/in/johntoppin

Friday, 30 October 2015

Year end coming up? What do your annual accounts say about your business?


 


As a specialist financial advisor to marketing agencies and professional firms I've recently come across two instances of companies losing business because of their public financial information. In one case after the company had won the pitch....and you know how much time, effort and money goes into that.. only to have the client's procurement department reject the company.

Owners of marketing agencies and professional firms are of course usually very careful with how their brands are perceived externally - especially by clients and the competition.

But when it comes to the annual accounts, their impact on the brand's image doesn't even get considered. In the cases I have seen recently, the costs were heavy in terms of the pitch and the lost business. Bankers and key suppliers also look to public financial information when deciding whether to do business with you.

Here are a six tips:

  1. Obtain credit reference reports on your own business and if there are errors get them corrected.
  2. Review your financial forecasts a couple of months ahead of the year end and identify what you should be fixing.
  3. Fix before the year end as it will be too late afterwards.
  4. Don't just let your auditors decide what the numbers should be.
  5. Talk through your objectives for the numbers with your accountants.
  6. Get the right balance between tax planning and financial presentation.
Investing a little time and effort in your annual accounts will easily pay for itself.
 
As a first step, why not pick the phone up and call John or email him and arrange to meet up. 

John's website is: http://www.nomizon.co.uk 

His credentials: http://www.linkedin.com/in/johntoppin

Monday, 15 June 2015

Building a tender bank




A tender gives you the opportunity to inform the buying organisation how you will meet their requirements, offer best value and why they should select your company.

Many businesses will respond to a number of tenders each year and some will be tendering very frequently.

Collating accurate and current background information for tenders can be time consuming. The best approach is for you to maintain an up to date tender bank accessible by your colleagues.

Start by identifying the most usual documents requested by colleagues responding to tenders. The basic background documents will usually include:

·         Certificate of incorporation (and name change)
·         Public and employers liability insurance certificates
·         Audited accounts for the 3 latest years
·         Policies covering health and safety and quality assurance
·         Policies covering equal opportunities and the environment
·         Company ownership and organisation charts
·         Biographies of key staff
·         Product or service specific information

In addition to the basic background documents you should also consider including more specific product or service information in the tender bank. Identify those of your products or services most frequently subject to tendered bids. For these items collect:

·         References from other customers
·         Technical specifications
·         Service levels
·         Pricing
·         Percentage of your company’s turnover made up by these products or services
·         Personnel responsible for customer care

The simplest method for managing the tender bank is to collect the data into a shared folder on your system. Scan in original documents such as certificates. Maintain dates in the filename of each item of data so that you can ensure that the documents in use are the most current. 

Keep a contents log for the tender bank and include an “update by” date, for example, to remind you to insert the next set of audited accounts.

As a first step, why not pick the phone up and call John or email him and arrange to meet up.

John's website is: http://www.nomizon.co.uk 
His credentials: http://www.linkedin.com/in/johntoppin

Thursday, 19 February 2015

Business Finance Handbook

 

On March 2nd my seventh eBook: Business Finance Handbook - Advice for business owners and finance managers will be published for ipad, iphone and kindle and will be available from amazon.com. 

This eBook includes 120 topics covering:
  • cash flow
  • profitability
  • planning and budgeting
  • corporate finance
  • financial management
  • accounts department

Examples from each section of the book are previewed in my last 6 blog entries.


This book is for owner managers and their finance people.

Throughout my career I have worked with many company owners and finance managers in companies of all sizes, helping them to solve business issues and be best placed to take advantage of worthwhile opportunities.

Most companies are primarily focused on their customers or clients and on sales. This is quite right too. Finances often take a back seat until things go wrong of course and the bank is calling, or suppliers are refusing to supply. Whenever I ask why finance has been left behind, the answer usually boils down to a lack of understanding.

This book is grounded in practical examples and issues that come up in real companies. There are lots of financial theory books and books covering accountancy and finance, this isn’t one of those.

 John's website is: http://www.nomizon.co.uk 

 His credentials: http://www.linkedin.com/in/johntoppin

Monday, 19 January 2015

Preparing for the audit



On February 2nd 2015, my 6th eBook: Accounts department - Advice for business owners and finance managers will be published for ipad, iphone and kindle and will be available from amazon.com. This blog entry is a sample from the eBook. There are 20 topics like this one covered in the eBook. 


One of the busiest times of the year is the year end and the annual audit. Good preparation for the auditors makes a big difference to the time they take and the amount of disruption suffered by the finance team and management. As audit fees depend on the time spent, anything you can do to help the auditors be more effective should reduce the fee they charge. Here are five things you can do:


1.    Agree a realistic and detailed audit timetable that you and the auditors can commit to. Ensure that key members of staff are not absent on leave during the audit.

2.    Ensure that the timetable allows sufficient time for you to have finalised the trial balance and draft accounts before the auditors arrive. It can be very expensive for them to audit a “moving target”.

3.    Compile an audit file for the auditors containing copies of all relevant documents and information. The auditors should supply you with a schedule of the information they require.

4.    Arrange for a member of senior management to spend some time meeting with the auditors and showing them around the office, shop or factory. This will give the auditor a wider perspective of the business.

5.    Once the audit closing meeting has finished and the accounts are finalised, don’t delay in having the financial statements signed by a director and the auditors. If you delay, the auditors will have to make further checks before they are prepared to sign the accounts.


Frequent and open communication with the auditors can make all the difference to their efficiency.


You should be meeting the auditors before they finalise their audit planning process. At the meeting advising them of important events or issues encountered during the year will help them to plan their audit.


Arrange to meet the auditors periodically during the course of their fieldwork. Use the meeting to update each other on progress and issues arising so that surprises are not stored up until the end of the audit.


Your staff should make themselves available to answer audit queries they should pay particular attention to ensuring junior auditors understand the responses provided to them.


The post fieldwork audit review will generate further queries. If you delay in responding to these the audit team will have moved on and the cost of their dealing with your response may increase if more senior staff have to be utilised.

Use the closing meeting to explore ways to jointly improve the efficiency of next year’s audit process.


As a first step, why not pick the phone up and call John or email him and arrange to meet up. 

John's website is: http://www.nomizon.co.uk 

 His credentials: http://www.linkedin.com/in/johntoppin