2018/19 Tax year – Employer’s checklist
Business Club | 5th April 2019
If you, or employers you are connected to, have an annual pay bill of more than £3 million you need to add the apprenticeship levy payments to your monthly PAYE and NIC payments. This is generally ½% of the excess of your wages bill over £3m. It is calculated on the amount by which the wages in the year to date exceed the relevant proportion of a £15,000 annual allowance, with credit for payments already made for the year.
Employment allowance £3,000
The employment allowance is a credit against employer’s secondary NIC. Only one member of a group can claim the allowance. It’s not given if the only employee paid over the secondary threshold is a director, or for personal, household or domestic work (like a nanny or gardener) – unless they are a care or support worker. From 6 April 2020 only employers with annual employer NIC below £100,000 will qualify.
Forms P11D and payrolling of benefits
Employers can voluntarily register online before the start of a tax year to tell HMRC about benefits in kind to be payrolled. Benefits must be payrolled for a full tax year, and de-registration applications must be made before the year starts.
If all benefits in kind have been payrolled for an employee then a form P11D will not be required. However, accommodation and loanscan’t be included and must still be reported on form P11D. Form P11D(b) is also needed to account for the employer’s NIC on benefits. If you choose to payroll company car benefits, you do not need to submit a form P46(Car) unless the car benefit is not being payrolled.
From 6 April 2019 the payslips for variable hours workers must show the hours for which they are being paid.
Those with up to 250 employers who have not been instructed by HMRC to make payment electronically can still pay by cheque, but payment must then be made three days earlier than the dates in the table above. If you usually pay less then £1,500 per month you may be able to pay quarterly not monthly.
Penalties, interest and estimates
Late filing penalties can apply to late FPS returns and range from £100 to £400 per month, depending on the number of employees. Interest is charged on a daily basis on late FPS payments. If you don’t submit an FPS (or an Employer Payment Summary (EPS) to say you haven’t paid any employees) HMRC will make an estimate and this specified charge will be included in your online account.
Some employers choose to postpone enrolling new employees in the pension scheme for three months, but if the employee opts in then employers must be ready to include them straight away.
HMRC help and advice Stationery telephone order line: 0300 123 1074 PAYE
NI deductions advice: 0300 200 3200 Online: www.gov.uk/topic/business-tax/paye
Shipleys’ Client Payroll Department
The different PAYE codes and categories of national insurance contributions can make it tricky to get even the basic deductions right. However, real difficulties can arise when you add complications such as pension payments, payrolling of benefits, statutory sick pay, maternity and paternity pay, statutory redundancy pay, student loan repayments, attachment of earnings orders (covering things like Child Support Agency Payments) and modified PAYE schemes for expatriates.
Keeping abreast of the current rules and dealing with payroll matters is time consuming. That’s why Shipleys’ Payroll Department is popular with clients of all sizes. We can help with the whole process including employees’ payslips and issuing instructions to your bank, thereby protecting your accounts department from unnecessary queries from your staff. We can assist with online filing.
T 01483 423607
Specific advice should be obtained before taking action, or refraining from taking action, in relation to the above. If you would like advice or further information, please speak to your usual Shipleys contact.
Business Club | 3rd April 2019
Artificial Intelligence and Machine Learning - in your business.
Business Club | 15th March 2019
Artificial Intelligence (AI) is being likened to a “Fourth Industrial Revolution” because of its potential for creating profound change in people’s lives, much as the invention of steam engines (First Industrial Revolution), electricity and mass production (Second Industrial Revolution), and the rise of the digital age (Third Industrial Revolution) did in the past.
Not all things we accept are AI really are – some are simply software with an algorithm that responds based on predefined input or user behaviour, albeit with extensive behavioural algorithms that make them more useful. A true AI system can learn on its own – typically improving on past iterations, becoming more aware and smarter.
AI and machine learning applications are everywhere and we use them all the time as individuals without always recognising them. Reflecting on how we are current use AI is a good starting point for thinking about whether and how it might be appropriate to use it in our businesses.
How we use AI
1. At home
- Central Heating control e.g. Nest bought by Google in Jan 14 for $3.2 billion, controls your central heating and learns your routine, through monitoring your location via your phone and movements in the house.
- Music and TV show recommendations - Music services use AI to track your listening habits. Spotify and Itunes use the information to suggest other songs you might like to hear. Amazon operates in a similar way.
- Alexa and Siri for finding information, getting directions, adding events to our calendars, sending messages etc. Turning on the TV or Radio, or changing the channel or station.
- Not just autofocus but portrait mode. Taking several pictures in some instances and prompting you to keep the best.
3. Email Communications
- Email Filters in Gmail - Google uses AI to ensure that nearly all of the email in your inbox is authentic. Gmail sorts email into 4 different tabbed categories, and sends the spam mail to a separate folder. Google claim that AI-powered filtering prevents more than 99% of spam from getting into your inbox.
- Smart Replies in Gmail. These offer users a way to respond to emails with simple phrases like “Thanks!” or “Let’s do it!” with a single click of mouse. Smart replies attempt to mimic writing styles, and often do a pretty good job of mirroring the way that you might respond.
- Nudging and Reminders in Gmail - Many email systems prompt you to review if an attachment should be included if your text uses words like attach an or enclose. Gmail’s “nudging” feature reminds you to follow up on emails you’ve ignored or forgotten. Using AI, Gmail attempts to determine which emails require a response, then highlights them after a few days of non-attention.
4. Social Media
- LinkedIn - AI is used to help match candidates to jobs. On its talent blog, LinkedIn explains that they use “deeper insights into the behaviour of applicants on LinkedIn” in order to “predict not just who would apply to your job, but who would get hired…”
- Pinterest - Pinterest’s LENS tool uses AI to identify objects in images. Take a picture of your friends dining table using Pinterest’s LENS tool, and its AI-driven feature will help find similar tables. In some cases, you’re even able to find the product’s seller so you can but it yourself.
- Facebook Proactive Detection - In November 2017, Facebook launched a proactive detection feature that scans posts to detect patterns that indicate a user may be considering self-harm. When it detects suicidal thinking patterns, the AI-powered program sends mental health resources to the person and, sometimes, also to their friends.
5. Web searches
- When you begin typing a search term and Google makes recommendations for you to choose from, that’s AI in action.
- Predictive searches are based on data that Google collects about you, such as your location, age, and other personal details. Using AI, the search engine attempts to guess what you might be trying to find.
- Google search engines evolved over time by studying the linguistics used in searches. Its AI learns from results and adapts over time to better meet the needs of users.
- For example, a search of “How much is the price of tea in China” offers Google’s choice of “best answer” highlighted at the top, followed by a list of sources that answer the question.
6. Online shopping and self service shops
- Adverts - Amazon and other retailers gather information about your preferences and buying habits from your online account purchases and loyalty card. Your shopping experience is personalised with suggested purchases tailored to you.
- Chatbots recognise words and phrases in order to (hopefully) deliver helpful content to customers who have common questions. Sometimes, chatbots are so accurate that it seems as if you’re talking to a real person.
- Dynamic pricing - Many businesses adjust the price of tickets (e.g. for an airline seat, ferry crossing or music concert) based on the number sold so far compared with ‘normal’.
- Bank apps - AI is used by many banks to personalise your experience on their mobile apps, doing things such as; reminding you about outstanding bills, alerting you that you are using your overdraft or prompting you to make a transfer
- Banks and card payment processors - These use AI to learn from your day-to-day financial transactions so that they can identify something unusual, and therefore potentially a fraud. They are often linked with an automated action – such as a text message to your ‘phone.
- Cars increasingly have predictive capabilities, with cruise control that breaks automatically due to other road users or pedestrians in front, and systems which warn of tiredness or lane departure without indication. Tesla cars are ‘information based’ with over the air updates and data sharing to provide more info to support development of self-driving cars.
- Satnavs - Google Maps takes actual and expected traffic and roadworks into account to find the quickest route and estimated arrival time.
- Taxi Apps - Uber uses AI to manage matching customers with drivers. Increasing the price when demand is high to decrease demand and encourage more drivers on to the road. The price increase required is constantly evolving based on AI learning. Journey times are calculated so you know when to expect a driver, food delivery or when you should reach your destination. Uber recently filed a patent application covering the use of artificial intelligence to determine if a potential customer has been drinking — before the driver agrees to pick them up. The software would attempt to determine their state by comparing the users typing, clicking and walking with their norm!
- Airlines - You might be surprised to discover how little flying the pilot actually does. A 2015 survey of Boeing 777 airline pilots reported they spend only 7 minutes manually flying the plane during a typical flight, with much of the rest being done by AI technology. Wired Magazine reports that Boeing is working toward building jetliners completely piloted by artificial intelligence — with no human pilots at the helm.
9. Translation Services
- Are often now used to communicate with those who don’t speak the same language (for example when abroad, getting help / directions or simply chatting) and viewing website written in another language.
10. Medical diagnosis
- Aid clinical judgment or diagnosis - Using AI to diagnose patients is in its infancy, but there have been some exciting starts. A Stanford University study tested an AI algorithm to detect skin cancers against dermatologists, and it performed at the level of the humans. A Danish AI software company tested its deep-learning program by having a computer eavesdrop while human dispatchers took emergency calls. The algorithm analysed what a person said, the tone of voice and background noise and detected cardiac arrests with a 93% success rate compared to 73% for humans. Theresa May announced an AI revolution would help The NHS predict those in an early stage of cancer, to ultimately prevent thousands of cancer-related deaths by 2033. The algorithms will examine medical records, habits and genetic information pooled from health charities, the NHS and AI.
- Image analysis - Very time consuming for human providers, but an MIT-led research team developed a machine-learning algorithm that can analyze 3D scans up to 1,000 times faster than what is possible today, providing critical input for surgeons It is also hoped that AI can help to improve the next generation of radiology tools that don’t rely on tissue samples.
- Surgery - Robots guide a surgeon's instrument during surgery, which can lead to a 21% reduction in a patient's hospital stay. Robot-assisted surgery is considered "minimally invasive" so patients won't need to heal from large incisions. Via artificial intelligence, robots can use data from past operations to inform new surgical techniques. One study that involved 379 orthopedic patients found that AI-assisted robotic procedure resulted in five times fewer complications compared to surgeons operating alone.
Use of AI in business
- AI is not magic – it will not solve all business problems instantaneously!
- AI is still something of a dark art – it often requires the commitment of massive resources and expertise to build applications
- AI for AI’s sake is a likely to be a bad idea –tools should be chosen for the value they deliver to your business, and not simply because they use AI
- Some businesses can already use some AI applications “out of the box” – best examples are in marketing, accounting (bookkeeping systems) and logistics / fleet management, online legal (employment contracts) and operations, and fraud detection
- Data is the key to AI – AI needs data to “learn” and work properly
- Data is a valuable resource – smaller business owners need to store and record data in a consistent manner if it is to be used with AI in future.
- In 1997, Deep Blue, the IBM supercomputer, beat reigning world chess champion Garry Kasparov in a six-game series. Twenty years later, Google’s AlphaZero routed Stockfish, the world’s best chess engine, over the course of 100 matches. The difference between the two machines: AlphaZero taught itself how to play like a human.
- Replika is the main product of Luka, an artificial intelligence startup founded by Eugenia Kuyda, a former magazine editor from Moscow, that’s based Moscow and San Francisco. When she started the company in 2013, its main product was a chatbot that talked to you about restaurant recommendations, until her team realised that people preferred looking for restaurants on a graphical interface, and seeing lots of options at once.
- She got the idea of a chatbot friend after her friend died in a car accident in Russia, using the texts they had exchanged as the underlying data. An avatar – Mazurenko that you can download from the App store.
- In the BREXIT referendum, everyone has their own motives for casting their vote, and campaigners needed to find out which future most appealed to them. This is where big data and artificial intelligence (AI) came into their own.
- According to the Guardian, billionaire financier Robert Mercer, who helped bankroll Donald Trump’s campaign for the presidency, “directed his data analytics firm to provide expert advice to the Leave campaign on how to target swing voters via Facebook – a donation of services that was not declared to the electoral commission”.
- The Trump campaign paid Cambridge Analytica more than $6m (£4.8m) to target swing voters in the US election, but Andy Wigmore, communications director of Leave.eu, said the person friendship between Mercer and Farage meant that the Leave campaign was offered the firm’s help for free.
- Cambridge Analytica’s technology harvested public data from people’s Facebook, Instagram, Twitter, and other social media profiles and used advanced machine learning to “spread” through their personal networks. The Leave campaign used this profiling information for over a million individuals alongside artificial intelligence to target specific undecided voters. Leave.EU founder and financial backer Arron Banks made it clear in a series of tweets that “AI won it for Leave”.
- A new book If this has caught your interest ; ‘The Creativity Code: How AI is Learning to Write, Paint and Think’ by mathematician Marcus du Sautoy.
Probate and estate administration guide
Business Club | 1st March 2019
This guide sets out what has to happen, from a legal and financial perspective, when somebody dies. This can be a very upsetting and difficult period for you. You should think carefully before deciding if you want to take on this additional administration burden, which can be complicated and take several months to finalise.
If you have any concerns, Shipleys Probate Services Ltd is licensed to provide probate services in England and Wales and can help you during this stressful time.
What is probate?
Probate is a term used to refer to the process of dealing with the estate of a deceased person. The people who are legally entitled to deal with the estate of the person who has died are known as ‘personal representatives’.
If there is a will naming executors, and they are willing and able to act, they become the personal representatives. They will need to obtain a grant of probate from the Probate Registry, which will enable them to fulfil their duties.
If there are no executors willing or able to act, or if there is no will, the personal representatives will be called ‘administrators’, and they will need to obtain a ‘grant of letter of administration’ which gives them authority to act. To keep things simple we will use the term probate to cover all situations.
The probate process ensures that relevant taxes are calculated and paid, money owing to creditors and owed by debtors is collected, and, if a will has been made, the deceased’s remaining assets are distributed to the beneficiaries in accordance with his or her wishes.
The process of probate can sound quite formal and complicated. To help you with some of the common words and phrases that are used, we have put together a glossary of probate and estate administration terms at the end of this guide.
Is probate always required?
In certain circumstances you do not have to go through the probate process, for example if:
- The deceased doesn’t own any property, land or shares and the estate is valued at less than £5,000.
- The contents of the deceased’s estate is held jointly with another and therefore passes automatically to the other joint party. Examples of where this may apply are joint bank accounts and some properties.
If you are not sure whether probate will be required, Shipleys can discuss and confirm this with you.
What’s involved in the probate process?
There are several stages to the probate process, which are set out below.
Find the will
First you should check whether the deceased has left a will. If, following a search of their home, you haven’t been able to find a will, you should also check with:
- his or her accountant
- his or her solicitor
- his or her bank(s)
- a will storage company – by doing an online search
- the London Probate Department
If you are liaising with accountants, solicitors, banks or will storage companies they will need to see a copy of the death certificate and also proof that you are the executor named in the will, before they release any documents.
If the deceased didn’t leave a will, which is referred to as ‘dying intestate’, it is usual for the next of kin to oversee the probate process. As noted above, for the purposes of probate they are referred to as ‘administrators’.
Applying for the grant of representation
The deceased’s personal representatives (executors or administrators) are responsible for handling the probate process.
The personal representatives can choose if they are happy to undertake the administration of the probate process, or whether they would like to engage the services of a suitably qualified professional, such as Shipleys. Some solicitors and banks can also undertake probate work. However, it is advisable to get comparable quotes before choosing who you want to administer the deceased’s estate.
The first part of the process to is to apply for a grant of representation. There are 4 stages to the application process:
- Complete an inheritance tax form - you or a professional valuer need to calculate how much the deceased’s estate is worth, including property, shares, goods and chattels etc. This valuation will decide which form you complete and how much tax there may be to pay on the estate. If inheritance tax is payable the form will be sent to HMRC and the tax payable must be paid before you apply for the grant. HMRC will send a form to confirm that this has happened which will be sent to the Probate Registry.
- Complete the probate application form (form PA1) – this can be downloaded from http://hmctsformfinder.justice.gov.uk.
- Send your application to your local Probate Registry – this should include the above PA1 and relevant inheritance tax forms, an original copy of the will and any codicils, as well as copies of the death certificate and current probate application fees.
- Swear an oath – once they have received the necessary paperwork, the probate office will send you an oath. You will need to visit your local probate office or the office of a commissioner for oaths.
Once you have sworn the oath, you should receive the grant of representation within 10 working days.
Administering the estate
Once the grant of representation has been received you will need to send a copy to the deceased’s asset holders, such as banks, building societies etc.
At this point you can start liquidating the deceased’s assets, which will provide funds to clear debts, pay additional inheritance tax, income tax or capital gains tax arising from the estate.
As the personal representative you are personally liable if you distribute the estate to the beneficiaries, but a creditor of the deceased subsequently makes a claim for an unpaid debt. To protect yourself from this happening you can give notice to potential creditors under Section 27 of the Trustees Act 1925. This involves placing an advert in the deceased’s local paper and in the London Gazette. Potential claimants have a set timeframe for responding, which can be no less than 2 months and one day from publication of the notice.
Preparing estate accounts
Once all claims on the estate have been investigated and all debts and taxes have been paid, you can proceed to distributing the estate. As the personal representative for the estate you must distribute the estate assets to the beneficiaries as identified in the will, or by statement of the law, if there isn’t a will. All beneficiaries should sign a discharge to confirm receipt of their assets or funds. Residuary beneficiaries will normally sign the estate accounts that you will need to prepare to confirm that they are happy to accept the amount left to them once all other payments have been made and confirm that they have no further call on the estate.
Glossary of probate and estate administration terms
Administrating the estate (or estate administration) - The process of distributing assets and funds to beneficiaries of the deceased’s estate, either as documented in a will or by following the rules of intestacy.
Administrator - Someone who is appointed when executors are not named in the will or if a named executor does not want to be responsible for the probate process. The administrator can also be the next of kin where the person has died without making a will.
Assets - A generic term for everything which the deceased owns including property, shares, money, goods and chattels etc.
Beneficiary- A person who receives assets will have been left to them through a will or by the rules of intestacy.
Codicil - A written statement which makes changes to an existing will.
Creditors - People or businesses to whom the deceased owes money.
Debtors - People or businesses who owe the deceased money.
Deed of variation - A legal document which enables the beneficiaries to make changes to the will, even after the death of a person.
Estate - All the assets owned by the deceased including property, stocks and shares, money, goods and chattels.
Estate accounts - Financial accounts that document what monies have been received and paid by the estate. The estate accounts also identify what assets and funds have been and are now due to be paid to the beneficiaries.
Executor - A person identified in the will to administer the deceased’s estate.
Grant of probate - The legal document that is produced following the grant of representation which enables the personal representatives to administer the estate.
Grant of representation - The grant giving the personal representatives the right to handle all the deceased’s legal and financial affairs, such as: selling or transferring property; accessing bank accounts; calculating and paying what tax is due; identifying what debts are outstanding and what money is owed; and distributing the estate.
Goods and chattels - Personal items, excluding land and buildings owned by the deceased.
Inheritance tax - Tax to be paid to Her Majesty’s Revenue and Customs where the value of the deceased’s estate is above the current inheritance tax threshold.
Intestate or intestacy - When a person dies without leaving a will.
Letters of administration - The grant which is given to personal representatives to administer the estate in the absence of a valid will or executors who will take on the estate administration.
Liquidating assets - Where the deceased’s property and assets are sold to generate money to pay taxes, creditors and to distribute to the beneficiaries.
Next of kin - The deceased’s closest living relative(s).
Oath - The legal process of confirming the entitlement of the personal representatives to take out the grant and confirming that they will administer the estate in accordance with the law. The oath also confirms the value of the estate that the personal representatives will administer and the details of the deceased.
Personal representative - A general term given to executors or administrators who are responsible for the probate process.
Probate - The legal and financial process which occurs following a person’s death. Sometimes referred to as ‘administering the estate’, probate deals with the deceased’s property, finances and personal belongings.
Will - A legal document detailing how a person wants his or her estate to be dealt with after death.
Business Club | 15th February 2019
At our February 2019 meeting we discussed tax planning opportunities in the following scenario.
Scenario: Mr Victor Green and Highbrow Events Ltd
Victor Green is 60 with two adult children. His wife’s 50th birthday celebration last year went horribly wrong and they are getting divorced. He became reacquainted with his former business partner Bunny whilst Skiing over Christmas, and she is about to move in with him.
He expects to pay his wife over £1m in the divorce settlement. This will leave him with the house worth about £900,000, some £500,000 at the bank earning about 0.25% interest and the shares in his company Highbrow Events Ltd.
The company pays Victor £100,000 p.a. and he still has his Tesla Model S Ludicrous AWD as his company car. The company also provides his iphoneXS max and private medical insurance (about £3,000 per annum). He is always entertaining potential new customers but pays for this personally as he knows it’s not tax deductible. He is considering paying himself a £30,000 bonus to cover the cost for the last year.
Highbrow Events Ltd now turns over about £1.5m and makes a profit of about £300,000 a year. Profits have been allowed to build up in the company so that it has almost £750,000 at the bank. He needs to find a new bookkeeper now that Mrs Green is no longer working for the business, and remains on the lookout for new, larger premises. He would like to relocate before selling the business.
Victor is thinking about purchasing some buy to let flats. He has his eye on a local new development and might buy three 2 bed flats for almost £300,000 each from the developer.
The following opportunities were considered.
Rate bands and allowances
Victor’s income is: salary £100,000, car £16,581, medical £3,000, bank interest £1,250 (less the £500 savings allowance) TOTAL: £120,331
This falls in the band between £100,000 and £123,700 in which the personal allowance (£11,850 for 2018/19) is withdrawn, (£1 of allowance is withdrawn for every £2 of income above £100,000). This results in a 60% marginal rate on income within the band.
If a £30,000 bonus is paid, this will mean that the personal allowance is completely withdrawn, and the tax payable on his income in excess of £150,000 will be at the marginal rate of 45%, where taking into account national insurance for he gets to keep 46.6% of what it costs the company.
It makes sense to either bring forward or defer income to avoid these bands. Even if this means you are subject to tax at the 45% additional rate (on income over £150,000) in one year, this is preferable to the 60% marginal rate. Higher rate taxpayers can save tax of up to £5,000 by doing this.
As an additional rate taxpayer the savings allowance is not available.
The ISA allowance remains £20,000.
Victor’s car cost £127,550, and the benefit in kind (the additional amount on which Victor is being taxed) this year at 13% is £16,581. Last year it was 9% = £11,480. Next year, 2019/20 the rate will be 16%=£20,408, substantially more than it was last year. However, this upward trend is reversed in 2020/21 when the benefit in kind will be 2%=£2,551. The tax on this at the higher rate will amount to about £85 a month. He previously had an old Range Rover (cost when new approximately £75K) which cost him about £1,000 a month in tax!
As the car is 100% electric it will not affected by the changes to the London congestion charge in October 2021 which will mean that all but 100% electric cars will then be subject to the charge. However, from Christmas Day 2025 all cars - including zero-emissions electric ones - will have to pay the £11.50 charge. (Note also the congestion charge exemption for private hire cars will also be removed from April 2019).
At present the company would get tax relief on the installation cost of a car charging point, when incurred, and there is no benefit in kind on the provision by an employer of electricity for a car.
Whilst it is correct that the company can’t claim a corporation tax deduction for the cost of entertaining customers which it re-imburses to Victor, he is not taxed personally on the re-imbursement. This would be a much better option; costing the company far less and helping Victor to save tax and avoid the additional 45% tax rate
If the company pays Victor a bonus it has to account for employers NIC and deduct employees NIC and Pay As You Earn (PAYE) tax. At the 40% higher rate, Victor would receive 51% of the cost to the company (bonus + Employers NIC), so if the cost to the company was £30,000 Victor would receive £15,300. The company gets a corporation tax deduction for the bonus which means the net cost is £24,300.
If the company simply re-imburses Victor the business expenses it would cost the company £15,300 with no CT deduction, saving £9,000 and leaving Victor with more of his 40% band available against his other income.
Salary / Dividend mix
It would be worth Victor reviewing the mix of his salary and dividends. The net income that Victor receives is:
|Higher rate (40%) taxpayer||Additional rate (45%) taxpayer|
Whilst these percentages might appear quite similar, keeping 54.7% represents a 7.25% increase over keeping 51% - a welcome boost to net income. Imagine your own net income increased by 7.25%.
Victor could consider making pension contributions which would attract tax relief at his marginal rate. The company may also make contributions for him, which qualify for a corporate tax deduction but do not attract a NIC liability or form part of Victor’s taxable income.
The normal annual allowance for pension contributions is £40,000. But this is reduced by £1 for every £2 by which income exceeds £150,000 up to £210,000, when the allowance is £10,000. The measure of income for these purpose is after deducting gifts of listed securities and land to charity, but not gift aid donations.
It is possible to bring forward unused relief from the previous three years.
Note these limits take into account both employers and employees contributions.
Lower pension contribution limits can apply – notably, those in 'drawdown' are limited to £4,000 a year, and the tax-eligible contributions from individuals are limited to the higher of their earnings from employment or self-employment and £3,600.
He will need to consider the availability of IHT Business Property Relief (BPR) in relation to his Highbrow events shares which are likely to be worth some £3m. BPR of 100% is given for trading assets meaning that the shares might pass free of Inheritance tax. However, the cash balances might be regarded as beyond those required for the purposes of the trade and be regarded by HMRC as investment assets for which no BPR is available. If Victor is building up cash to fund a change of office premises he should document that fact, and maybe including a note in the accounts, so that he can produce evidence to HMRC if required.
Victor should also note that the additional nil rate band in relation to his is only available if his estate is less than £2m. The estate is valued before reliefs so with the value of Highbrow Events Ltd he will not get the additional allowance meaning that his nil rate band is likely to be the normal £325,000.
Even after his divorce, Victor will need to be mindful of the potential IHT liability on his estate. He may wish to consider marrying Bunny in due course.
Sale of shares in Highbrow Events Ltd
For a higher or additional rate taxpayer the normal rate of capital gains tax (notably not including residential property) is 20%. However, if the shares in Highbrow Events Ltd quality for Entrepreneurs’ Relief (ER) then the applicable tax rate is 10%. There is a lifetime limit of £10m on gains qualifying for ER.
One of the conditions for ER is that the company must be a trading company or substantially a trading company. Substantial in this context means more than 20%. The question to ask is how should a company’s non-trading activities be measured to assess whether they are substantial? There is no simple formula to this but some, or all, of the following are among the measures or indicators that might be taken into account in reviewing a particular company’s status. These indicators are viewed ‘in the round’.
- Income from non-trading activities
- The asset base of the company
- Expenses incurred, or time spent, by officers and employees of the company in undertaking its activities
- The company’s history
By planning a divorce settlement carefully, it should be possible to minimise the tax cost of transfers under the divorce settlement, leaving as much as possible available across the family as a whole for distribution between the divorcing spouses.
There is no immediate tax charge on the transfer of assets under a divorce settlement for either IHT or Income Tax purposes.
There are, however, immediate Capital Gains Tax (CGT) considerations for any transfers of assets (i.e. not cash) between spouses in the tax years following permanent separation
It’s not clear whether the family house is currently in joint names so that his ex-wife will sign over her share as part of the divorce settlement.
Buy to let – Stamp duty surcharge
As the buy to let properties will count as second properties they are subject to a 3% stamp duty surcharge as follows:
125,000 @ 3% = 3,750
125,000 @ 5% = 6,250
50,000@ 8% = 4,000
Making the SDLT £14,000 on each property (rather than £5,000) so £42,000 in total, possibly rather more than Victor was expecting!
Buy to let - Loan interest relief restriction
On the assumption the buy to lets generate a 4.4% yield, if Victor takes out variable rate finance the recent lenders guidelines mean that he may only be able to borrow £150,000 on each property. A higher amount – up to £250,000 might be possible with fixed rate finance but he may find that the more attractive rates are only available for borrowings of around £200,000 per property. With the stamp duty and fees etc. Victor may end up borrowing £600,000 on a total purchase price of £950,000 – using £350,000 from his cash reserves.
This year, only three quarters of the interest paid on the borrowings is allowed as a deduction from his rental income. A basic rate (20% credit) is given against the other quarter. From 6 April 2019 the deduction and credit are both given in relation to half the interest so his position may be as follows:
Rent (£1,100 / month x 3 properties 39,600 39,600
Interest paid deduction £600,000 @ 3.29% (one half/all) (9,870) (19,740)
Other rental expenses say (assumed all allowable) (5,940) (5,940)
Taxable rent 23,790
Tax @ 45% / net of credit (10,706) (8,732)
Tax credit £9,870 @ 20% 1,974 0
Tax payable / net rent 8,732 5,188
The cash generated through lettings is quite modest. If victor has about 3 months of voids across all three properties he would find that the rent does not cover his expenses (as the rent comes down the tax liability also drops).
The interest relief drops over the following two years, so from 2020/21 there is no deduction for interest, only a 20% tax credit on the whole of the interest.
Buy to let - structure
Victor may also wish to consider forming a company through which he purchases his buy to let properties.
Although the company would still be caught by the 3% SDLT surcharge on residential property purchases, it would not be affected by the restriction in relief for interest paid. The rental profit would of course be subject to corporation tax and Victor would be taxed on the dividend.
On first analysis the 40% or 45% marginal rate applicable to Victor if he holds the properties personally looks preferable to the effective rates of 45.3% and 49.9% resulting from corporation tax and then a dividend (calculations are for 2018/19 and assuming higher and additional marginal Rates for Victor).
However, the actual taxable profits are likely to be lower because of the availability of the interest deduction and the profits could be retained in the company to avoid the dividend tax charge. Victor might be able to make use of the £2,000 dividend allowance, or defer extracting profits to a time when his marginal tax rate is lower.
The company structure would also make it easier to introduce other shareholders, who may also benefit from the dividend nil rate band and lower tax rates. This might also form part of a longer term inheritance tax plan for Victor to give away shares in the company to his children.
When we discussed this scenario with our business club members we had a number of other suggestions including:
- Victor might want to use his ISA allowance of £20,000.
- He should update his will.
- Whether Victor might delay his divorce until the next recession when assets values are lower!
- Entering into some sort of pre-nuptial arrangement with Bunny.
- If the Children still work for the company should they be paid accordingly?
- The financing arrangement son the new premises.
- On the sale of the business
- Victor should carefully plan his exit strategy
- The costs associated with relocation of the business will reduce the profit and therefore have an impact on the value of the business when it is sold. Perhaps Victor should instead concentrate on improving profitability and the sales multiple.
- He might want to relocate to Portugal before selling the business which could mean that he avoids tax on sale.
Victor will need to take specific professional advice on these matters but there is certainly scope for sensible tax and other planning. In relation to his overall finances.
VAT Key Data
Business Club | 11th September 2018
Some of the key facts and figures about VAT and related systems such as Intrastat and EC Sales Lists are listed below. Only a summary is given and you should always seek detailed professional advice on your specific circumstances.
VAT Registration and Deregistration Thresholds
Super Reduced Rate
Farmers Flat Rate Addition
VAT Return Filing Periods
Small Businesses (Turnover < £1,350,000)
Businesses in a net repayment position
Large Businesses (Annual VAT Liability > £2,300,000)
Monthly (optional treatment in lieu of quarterly returns + monthly payments on account)
All other businesses
Quarterly (businesses can choose which quarters to use)
Pre-Registration Input Tax – Time Limits
Goods still on hand at time of registration
VAT is recoverable if incurred in the 4 years prior to VAT registration.
Services (unless relating to goods consumed pre-registration)
VAT is recoverable if the service was received in the 6 months prior to registration and for the purpose of the business now covered by the VAT registration.
VAT Return Filing and Payment Deadlines
Paper returns (available in very limited circumstances) and users of the Payments on Account Scheme.
30 days from period end
Electronic returns (excluding users of the Payments on Account Scheme)
37 days from period end
Filing Periods and Deadlines – other returns
1. EC Sales Lists (Goods) – Filing Periods:
Dispatches < £35,000 per quarter
2. EC Sales Lists (Services) – Filing Periods:
3. EC Sales Lists – Filing Deadlines:
14 days from period end
21 days from period end
4. Foreign Business VAT Refunds – Filing Periods:
Max = 1 calendar year
Min = 3 months
Max = 12 months (1 July to 30 June)
Min = 3 months
5. Foreign Business VAT Refunds – Filing Deadlines:
1. Failing to register on time
10% - 30% of net VAT due
20% - 70% of net VAT due
Deliberate and concealed
30% - 100% of net VAT due
2. Failing to file and pay VAT on time
2% of unpaid amount
5% of unpaid amount
10% of unpaid amount
15% of unpaid amount
Note: The first default triggers a 12 month default surcharge period and a surcharge of 0%. The second and subsequent defaults extend the default surcharge period by 3 months and the surcharge increases to 2%, 5% and so on.
3. Errors on VAT Returns
0% - 30% of value of error
20% - 70% of value of error
Deliberate and concealed
30% - 100% of value of error
Capital Goods Scheme Items
Computers, single items of computer hardware, ships or aircraft
£50,000 or more excluding VAT
Land and buildings (including civil engineering works, refurbishments and fit outs)
£250,000 or more excluding VAT
10 years - (5 years where the interest acquired has less than 10 years to run).
VAT Error Disclosure Thresholds
Net Value of Error
Method of Disclosure
VAT Return (see note below)
< £50,000 AND < 1% of Box 6
All other amounts
VAT Return (see note below)
VAT 652 form
Note: To achieve the maximum opportunity of minimising penalties taxpayers can include the net value of errors discovered on the current VAT return and may notify this action to HM Revenue & Customs using a VAT 652 form.
Dispatches Exemption Threshold
Acquisitions Exemption Threshold
Delivery Terms Exemption Threshold
2. Filing Periods:
1. Cash Accounting
Turnover < £1,350,000
less than or equal to
Turnover ‹ or › £1,600,000
turnover exceeds £1,600,000
2. Annual Accounting
Turnover < £1,350,000
less than or equal to
Turnover ‹ or › £1,600,000
turnover is more than £1,600,000
3. Flat Rate Scheme for Small Businesses
Taxable Turnover (Exc VAT) < £150,000
less than or equal to
Total Business Income (Inc VAT) > £230,000
4. Payment on Account Scheme
Annual VAT Liability > £2,300,000
Specific advice should be obtained before taking action, or refraining from taking action, in relation to the above.
Business Club | 20th July 2018
In our July meeting we talked about online networks. Almost everyone now does loads online – much more.
Socialising, shopping, watching TV shows and films, banking and bills – even doing your tax return. Many people use TripAdvisor, Airbnb and Amazon reviews to make decisions.
Even if you personally prefer some offline things – meeting friends for a meal etc, as businesses we need to think about our customers and what they are using and how best to communicate.
What are people doing online and why?
Connecting and building communities?
Connecting people with similar interests who aren’t local to each other but have something in common
- Sites like Mumsnet and Netmums for parents and families
- LinkedIn groups for professionals in a similar field
Keeping people connected who know each other in ‘real life’
- Whatsapp groups
Helping people who are geographically close to each other to get to know each other, help each other and build a ‘real life’ community
- Facebook community groups
- Sites like borrowmydoggy.com, liftshare.com or streetbank.com
Recruitment / Procurement
Perhaps finding more efficient ways of doing things.
New customers – finding and building relationships.
Buying and shopping
- 80% of B2B buying decisions involved online
- Product range/pricing, experience and expertise
- Quick access - Online is more efficient full range, delivery.
- Reviews Airbnb, TripAdvisor, Trust Pilot, Feefo
The Shed restaurant in Dulwich was just a listing created by a freelance writer, Oobah Butler, who used his home – a shed in Dulwich in south London – as the inspiration for a high-concept new restaurant: “The Shed at Dulwich.” With hardly more than some fake reviews and a website, it had climbed the site’s ratings in one of the world’s food capitals.
Should we be asking whether we rely on reviews too much and are they authentic? Who is leaving these reviews and are they trustworthy? Are we are letting these reviewers become part of our online social network?
How do businesses deal with bad reviews? How can businesses encourage good reviews?
Do we all need to be a bit sceptical?
Online networks have also created social media influencers. In recent years, brands have been using so-called "influencers" - fitness gurus, gaming addicts, beauty bloggers, fashionistas and others - as the face of their advertisements. Influencers' take advantage of their social capital and endorse opinions about products, which are shared on social media platforms, help spread viral conversations about brands online
Some well known influencers we looked at:
- Zoella – UK fashion and beauty blogger. 40 million fans over her social media channels. She had some negative press over Christmas when a beauty advent calendar she endorsed with Boots was not perceived to be value for money.
- Felix Kjellberg (aka PewdiePie) – Swedish Gamer. 53 million subscribers on YouTube. He was alleged to have been anti-Semitic in some of his videos and images and his sponsorship deal with Disney was severed.
- Logan Paul US vlogger with 16 million Instagram followers – posted a controversial suicide video on YouTube and faced a backlash.
- Kylie Jenner – Reality TV personality, CEO of a makeup company and member of the Kardashian-Jenner family. 108 million Instagram followers. Has her own company but also sponsorship deals with other big brands. Back in February she tweeted that she was no longer using Snapchat and just one day later Snapchat’s stock price dropped over a million dollars.
- Clemmie Hooper – midwife with 500,000 Instagram followers. Shot to fame for her musings on being a parent of 4 daughters. She was accused of exploiting her children and posting ‘ethically dubious’ pictures and stories of her family life.
There are pros and cons of using influencers as part of your marketing strategy. Last February Elle Darby a YouTuber wrote to a Dublin Hotel asking for free accommodation for her and her partner in exchange for publicity. The manager responded with disdain, but the subsequent publicity reached 20 countries and potentially 450 million people. Her YouTube subscribers and Instagram followers increased in the thousands, so even that ‘spat’ generated publicity for her and the Hotel.
Something like this shows how people are leveraging their social capital and making it into a ‘business’ or a money making opportunity.
Online networks can influence the macro environment
- US elections
Are we connecting or is it an echo chamber?
Back in the early 2000s the US legal scholar Cass Sunstein offered a stark warning.
“Although millions of people are using the Internet to expand their horizons, many people are doing the opposite, creating a Daily Me that is specifically tailored to their own interests and prejudices,”
They would, in effect, live in ‘echo chambers’, leading to greater polarisation in a country’s politics.
Can our use of online social networks mean that we can be manipulated or only read things or connect with things that social media channels thing we will like based on our information and personal searches.
Fake news is not new however it has become a hot topic.
Many people now get news from social media sites and networks and often it can be difficult to tell whether stories are credible or not.
Social media sites can play a big part in increasing the reach of these type of stories.
Google and Facebook have announced new measures to tackle fake news with the introduction of reporting and flagging tools. Media organisations like the BBC and Channel 4 have also established fact checking sites.
Donald Trump relies on Twitter to communicate with people, rather than traditional news outlets citing the rise of ‘Fake News’ so can online networks combat as well as create Fake News? Whatever the answer is, they have changed how we find out about what is happening in the world forever.
What should we do differently in our businesses – what can we learn from it?
- How quickly good and bad publicity can spread.
- How do we deal with the bad publicity if it happens to our business?
- Can we leverage the power of our networks to create some good publicity for our business?
- Should we ‘spread the love’ and leave a positive review or endorsement?
Internal issues, like recruitment or finding suppliers.
- Do our online networks give us an advantage to do things more efficiently or for better value?
- We don’t operate in a vacuum – we’re all effected by the political and economic climate we live in
- In the days of online media and fake news businesses can’t afford to be complacent about the status quo. Who would have thought Brexit would have happened, or Trump coming to power? We need to be aware and agile.
- Influencers are powerful, and can give a business a lot of good publicity.
- It’s a new way of advertising and you need to make sure you are abiding by advertising regulations.
Learn from the influencers and allow an authentic view in.
- People like Kylie Jenner or Mark Zuckerberg both are social media presences outside of their businesses. They are individuals with their own distinct personalities and views and everything they do funnels publicity towards their businesses.
- We can’t all be billionaire CEOs but showing the world you are a person just like everyone else helps you create a bond with potential customers and clients. It humanises you and makes you stand out.
- We can’t ignore online networking - it’s here to stay.
- It can give us an amazing opportunity to maintain our connections with people and build communities and learn.
- It shouldn’t replace real life and face to face connections, just make it better and easier.
Where in the World?
Business Club | 22nd June 2018
During our June 2018 meeting we discussed easier movement around the world and the implications this has both for businesses evaluating where best to trade, and also for individuals deciding where they want to work and live.
To put this into context in our own country - during 2017, 334,000 people left the UK to live elsewhere. In the same period 578,000 arrived. People are moving around the world more than ever before.
A more accessible world
With the proliferation of technology and faster access to comparative and current information, it is becoming easier to evaluate a territory to assess its business or personal potential. Technology is also a key factor in facilitating the ease of flexible working and creation of disperse workforces, as our February Business Club session concluded.
And when weighing up business expansion overseas or personal migration, many considerations clearly come into play. In our discussion we looked at the tax versus social benefits of several countries to compare them. Obviously political and quality of life issues matter too, but in some cases economic and fiscal considerations can be a cause behind why people move.
Where in the World – for you and your business?
Despite the globalisation of many products, services and technology, and despite higher standards of living in more territories across the world, each country still has its own nuances. These nuances will form part of any evaluation whether to live and work there. For example, tax approaches in different countries (even within Europe), are really varied as the Business Club’s discussion uncovered. So too is the approach to social service provision of different countries – both in financing and the quality of it.Conclusions from the Club’s discussions were that people are more willing to pay tax in order to gain a good standard of social services – particularly education, healthcare and pensions. At the same time, quality of life, environmental/climate and cultural factors of a particular territory were also cited as a key attraction for potential migration/expansion.
Making the decision to expand overseas or move
Fortunately there is plenty of information to hand to help businesses and individuals assess whether expanding or moving to a new territory would be right for them. The Business Club’s discussion included looking at statistics from the:
- The Organisation for Economic Co-Operation and Development (OECD)
- The World Health Organisation
- The World Economic Forum
There’s also practical insight and guidance from organisations such as:
- The British Chambers of Commerce
- The CBI
- The UK Government
At Shipleys we are part of the AGN association who have devised a number of handy ‘Live Country Guides’. These guides give insight about how specific countries are prepared to attract external investments, main development indicators, inflation rates, export / imports, and business facilities.
The Shipleys’ team also includes specialists in international tax, advice on migration or business expansions overseas, cross-border matters and supporting non-domiciles here in the UK. If you’re sights are focusing on more distant horizons, why not get in touch with the team for an initial chat?
Bitcoin - Is it the future?
Business Club | 18th May 2018
During our May 2018 meeting we talked about Bitcoin - we looked at the hype surrounding it and talked about how it was shaping the future.
James Howell an IT worker from Newport South Wales mined 7500 Bitcoins in 2009 and had them stored on his computer. He spilt a drink on the PC and threw out the hard drive in 2013 and it ended up in a landfill site. It hit the headlines when he realised what he had done and the value of those Bitcoins would have been £4.6 million.
You need a ‘wallet’ which is a place to store the digital currency. This stores your private key, as secret number that gives you access to your Bitcoins. Your private key also allows you to move across marketplaces. You can use any marketplace with your wallet.
There are different kinds of wallets – software ones are apps that connect to your traditional bank account. There are also hardware wallets that look like flashdrives. These are considered more secure because they disconnect from the internet and are less likely to be hacked.
You create a wallet, download the app (if it is a software one), visit the exchange and buy your bitcoin. You can buy less than one Bitcoin (they can divided up to 8 decimal points) to suit your budget.
What is Bitcoin?
It's a crypto currency built on blockchain!
What is Blockchain?
A blockchain is essentially a ledger of transactions which gets larger over time as more transactions are added to it. When a bunch of new transactions are ready to be added, they are called a block. A blockchain is simply a chain of blocks added together to form a ledger.
The ledger itself is not in one place. Full and partial copies of it are spread out across computers across the world. You may have heard the term Distributed Ledger Technology, and this is what this means, as the ledgers are distributed across many locations.
The appeal of blockchain technology is that when you want to add some more transactions to the ledger, all the existing transactions are verified using a complex algorithm.
The theory goes that you can’t cheat the system, as the list is being continuously verified. If one copy of the ledger is altered, then it is disregarded by the system as there are many other correct copies.
It has got big
- One of the first ‘crypto’ currencies and has to date been the most successful.
- Its market value has at times been greater than that of Disney or IBM.
- Bitcoin is bigger than the total currency supply of Denmark!
- There are currently about 16.7 million Bitcoins in circulation
Why are people interested?
The sheep effect – everyone is talking about it.
- New technology behind it
- Wide media coverage can heighten the sense that we’re missing out on something that everyone else is doing,
- The more we hear about something like bitcoin, the less risky it seems to us. “Simply because it’s more familiar, people are more willing to get involved,”
- A bit like dreaded pyramid selling then?
Just look at the price changes:
- Yesterday 1 bitcoin was worth £6,150
- This time last year 1 bitcoin was worth £1,829
You can buy Bitcoins from other people using online marketplaces. There are also crypto currency brokers – like Coinbase, Bitstamp, Kraken and Gatehub.
There will only ever be a maximum of 21 million Bitcoins produced – not a feature many other currencies can boast. Some investors compare its finite supply to gold.
To help fund your new business
ICO = "initial coin offering," and refers to the creation and sale of digital tokens. Perhaps ‘Vouchers’ is better.
Buyers either want:
- The inherent benefit - it typically grants the holder access to a service
- The benefit will be in increasing demand, which will push up the market price of the token, enabling them to be sold for a profit.
For the enterprise:
- raise funds without giving up equity,
- Getting customers up front (albeit might not be paying full price for the service as they use it)
To hold your wealth securely?
- blockchain technology, means every transaction is recorded and theoretically immutable.
- It can be divided, stored and transferred
- It has a limited supply
- No devaluation
Use as a currency
- It is a decentralised currency, not linked to any bank or country. This makes it an appealing way of putting your money somewhere else if you are worried about your own currency.
- Proper currency? OED defines a currency as ‘A system of money in general use in a particular country’ Many ways yes but not yet the routinely used medium of exchange and nor is the state involved
- Seems to avoid exchange control
- Holders are anonymous
- Others are available!
Because you are a miner
- Bitcoin mining is done by specialized computers.
- The role of miners is to secure the network and to process every Bitcoin transaction.
- Miners achieve this by solving a computational problem which allows them to chain together blocks of transactions (hence Bitcoin’s famous “blockchain”).
- For this service, miners are rewarded with newly-created Bitcoins and transaction fees.
Are there other crypto currencies?
- Litecoin (LTC) Litecoin, launched in the year 2011, was among the initial cryptocurrencies following bitcoin and was often referred to as 'silver to Bitcoin's gold.'
- Ethereum (ETH)
- Zcash (ZEC)
- Ripple (XRP)
- Monero (XMR)
Is it the future?
Or is it a bubble?
Noreiel Roubini (the economist credited with predicting the 2008 global financial crisis) said in February that it was the ‘mother of all bubbles’ It has some of the hallmarks of a speculative bubble that could burst – like the dotcom boon and the US subprime housing crash.
Stages of a bubble:
- Stealth phase. A period of quiet, slow rises - after the invention, but before wider awareness. It ends as the price starts to take off
- Awareness phase. More people get involved - often from banks and investment companies - as they see the potential and the price rises faster. At the end of this phase there's a sell off, that catches out pessimists. The price soon recovers
- Mania phase. This is the point the media get involved and the public start buying it up. Enthusiasm for the product is followed by greed, which is followed by delusion and culminates in the proud proclamation of a "new model" that allegedly explains the growth
- Blow off phase. The price drops. Not a lot, but a bit. Then recovers - although not to its previous level. The true believers say it's nothing to worry about and buy more after the drop. Then prices drop again and reality sets in. People get scared and start selling, then desperate, then they just give up as the price ends up back where it was in the "stealth" phase and fortunes are lost. Eventually there's a recovery to around the level seen in the "awareness" phase followed by normal growth - because most of the time at the start of every bubble is a good idea
Common elements in most bubbles:
- The willingness of participants to suspend their disbelief and to steadfastly ignore the increasing clamor of cautionary signals.
- The bigger a bubble, the greater the damage it inflicts when it finally bursts.
Is the real question not about bitcoin or even crypto currencies, but about blockchain and how that can change the world?
- Decentralised Internet. Programmers are currently working on decentralised internet platforms to distribute all the functions of the internet over distributed nodes which will increase the resiliency of the world wide web.
- Smart Contracts. Smart contracts can be built on top of a ledger and operate as decentralised applications. These programs can run functions which are becoming more sophisticated and may diminish the need for standard legal contracts.
- Decentralised Markets. One challenge with cryptocurrencies such as Bitcoin is the need to trade on centralised exchanges which can be shut down or hacked. Decentralised markets allow trading without having to trust a third party.
- Distributed Cloud Storage. Distributed cloud storage avoids the need to place faith in large centralised companies where personal data is vulnerable and pricing may escalate to cover the expanding number of data servers.
- Decentralised Social Networking Sites. Social networking sites are centralised and are prone to censorship of information. Decentralised social media platforms such as Steemit mitigate this and financially reward the content creators.
- Encrypted Messaging. Peer to peer messaging can leverage blockchain technology to encrypt messages and store data bits efficiently on many different computers where they can only be accessed with a private key.
- Proof of Ownership. Items that are purchased could be tracked on the blockchain to demonstrate proof of ownership and to prevent the sale of stolen goods which may eventually help to reduce crime.
- Authenticated Voting. While digital voting can be susceptible to tampering, blockchain voting technology is verifiable and would allow anybody to audit the blockchain to confirm votes are time stamped and legitimate.
- Stock exchange. In traditional stockmarket there is typically a delay of 2–3 days for settlement of stocks and bonds. Trading stocks on a blockchain is more cost effective and provides instant settlement.
- Real Estate. Property titles, transactions and historic value can be built onto the blockchain providing transparency and reducing the time and cost associated with real estate transactions.
Comparison with Amazon
The growth of bitcoin can be compared to the growth of Amazon in the 1990s. That has revolutionised many aspects of our lives. Even by the start of 1997, everyone knew Amazon had a great idea, but no one could fully explain how much its shares should be worth. Amazon has a market value of $723bn (taken from the American version of the Guardian April 2018)
Consequently, investors had to guess at the company’s value, notoriously overestimating the possibilities for a time. Amazon rose more than 6,000% in its first two years after its public offering. 18 years later the peak price from back then looks cheap by comparison today.
Surprisingly, Bitcoin’s performance in its first two years only achieved two-thirds of Amazon’s original run-up. The recent price appreciation of Bitcoin over the last two years and the price of Etherium since its initial coin offering have both made dramatic gains, but have yet to match Amazon’s meteoric rise.
It’s possible that cryptocurrencies are not only here to stay, but potentially a life changing mechanism for all of us. If that’s the case, then Bitcoin offers investors a multi-decade investment opportunity, rising like Amazon's market cap — and a price — that defies logic.
Blockchain - the technology behind it will make massive changes.
The disrupter top of the pile?
Business Club | 25th April 2018
Everyone is talking about disrupters. In our April meeting we asked ‘Who are they, what makes them and what is the relevance to our businesses?’
What is a disruptive company?
It was a term coined by Clayton Christensen, of Harvard Business School, in his book “The Innovator’s Dilemma”. he used the term to describe innovations that create new markets by discovering new categories of customers. They do this by harnessing new technology, developing new business models and sometimes exploiting old technologies in new ways.
- Disruptive innovations tend to be produced by outsiders and entrepreneurs, rather than existing market-leading companies.
- The business environment of market leaders does not allow them to pursue disruptive innovations because they are not profitable enough at first and because their development can take away much needed resources from the products and services they are already delivering.
- A disruptive process can take longer to develop than by the conventional approach so there is more risk, but once the disruptive company is in the market the impact and potential for growth can be huge.
Why do businesses care so much?
Business leaders are always worried about disruption. A new rival might change their sector so fundamentally that their own business could be put at risk, or made obsolete. PwC’s did a survey in 2017 of 1,379 chief executives around the world, 60 percent said that technological advancements had significantly changed or completely reshaped competition in their sector in the last five years, and more than 75 percent anticipated they would do so before 2022.
Who are these companies?
CNBC the American television company completes an annual disrupter list and here are some of the more familiar names on it:
- Ride shares like Lyft (based in San Francisco), Uber and Grab (SE Asia)
How do they operate?
- Create new markets e.g: Voice recognition software .
- Take the low end of an established market e.g: Sony’s pocket radio enabling teenagers to listen to rock’n’roll
- Often have worse initial performance compared with established products
- Clarity of purpose
- Try to help customers, not change them
- Seeking out early break even helps to find the right market for the product or service.
What does this mean and should we be worried?
Partly because of disruptive innovation, the average job tenure for the CEO of a Fortune 500 company has halved from ten years in 2000 to less than five years today.
Who can we learn from?
In the late 1990s, the company competed directly with the Blockbuster retail chain through a mail-order distribution service that explicitly acknowledged its patrons’ love of convenience and their irritation with à la carte pricing and late fees (Netflix’s subscription model let customers keep a DVD as long as they wanted). In 2007, when streaming video became viable, Netflix rapidly pivoted to offer that service.
In 2013, it began creating its own shows, and it has pioneered the use of artificial intelligence and machine learning to discern consumer interests. A distinctive core strength — the ability to understand what its customers want and do, using in-depth analytics and behavioural data captured by the company — enabled Netflix’s growth.
More of a cautionary tale?
Let’s look at the impact of ride-sharing companies (such as Didi Chuxing, Lyft, Ola Cabs, Sidecar, and Uber) on taxi companies in many cities. Some taxi companies had only three advantages of their own to draw on:
- drivers who knew how to navigate the streets,
- a dispatching and hailing system already in place
- a high level of government protection
Global positioning and smartphone app technologies have undermined the first two advantages, and the third is under fire. This lack of real advantage has made the taxi industry highly vulnerable to disruption for years
How to make sure that your business won’t become a victim
Appreciate your strengths and build on them. It is far better to create advantage through a few distinctive, deeply ingrained capabilities that allow you to deliver on your value proposition better than anyone else. Although it may take years to fully build them out, significant results will begin to appear much more rapidly in most companies.
When you are threatened, slow down and look at the data for your industry. You are likely to find that the disruption isn’t moving as fast as you think it is. That it isn’t hitting as much of the industry as you are afraid it is.
And that in your existing strengths are the tools you need to thrive — either by tackling the threat, by staying in front of it or by building out your capabilities. You’ll discover that you have plenty of time to focus on what matters most: a distinctive edge that even the disruptors can’t take away from you.
Business Club | 20th March 2018
In our March 2018 meeting we discussed leadership and here are some of the views we considered:
"Great leaders are almost always great simplifiers, who can cut through argument, debate and doubt to offer a solution everybody can understand."
General Colin Powell (Commander of the U.S. Army Forces Command (1989), Chairman of the Joint Chiefs of Staff (1989–1993), the 65th United States Secretary of State 2001 - 2005 (Pres. George W. Bush)
"You manage things; you lead people."
Grace Murray Hopper, U.S. Navy Rear Admiral
"Leadership is the capacity to translate vision into reality."
Warren Bennis ((born March 8, 1925) is an American scholar, organizational consultant and author, widely regarded as a pioneer of the contemporary field of Leadership studies).
"The key to successful leadership today is influence, not authority."
Kenneth Blanchard (born May 6, 1939) is an American author and management expert. His book The One Minute Manager (co-authored with Spencer Johnson) has sold over 13 million copies and has been translated into 37 languages
"Leadership is the art of getting someone else to do something you want done because he wants to do it."
General Dwight Eisenhower. (Ike. October 14, 1890 – March 28, 1969, five-star US Army general World War II, Supreme Commander of the Allied Forces in Europe (invasion of North Africa in Operation Torch in 1942–43, invasion of France and Germany in 1944–45, In 1951 he became the first supreme commander of NATO and was the 34th President of the United States from 1953 until 1961.
"If your actions create a legacy that inspires others to dream more, learn more, do more and become more, then, you are an excellent leader"
Dolly Parton, singer-songwriter
"It is our choices, that show what we truly are, far more than our abilities."
J.K Rowling, author
"Never tell people how to do things. Tell them what to do and they will surprise you with their ingenuity. "
General George Patton (November 11, 1885 – December 21, 1945) United States Army best known for his leadership as a general during World War II. He was on the U.S. 1912 Olympic pentathlon team and also designed the U.S. Cavalry's last combat saber: the "Patton Saber" (the M-1913). In World War I, he was the first officer assigned to the new United States Tank Corps and saw action in France
"Presenting leadership as a list of carefully defined qualities (like strategic, analytical, and performance-oriented) no longer holds. Instead, true leadership stems from individuality that is honestly and sometimes imperfectly expressed… Leaders should strive for authenticity over perfection."
Sheryl Sandberg, COO Facebook
"What you do has far greater impact than what you say."
Stephen Covey (October 24, 1932 – July 16, 2012) American educator, author, businessman, and keynote speaker. His most popular book was The Seven Habits of Highly Effective People. His other books include First Things First, Principle-Centered Leadership.
"Sometimes leadership is planting trees under whose shade you'll never sit."
Jennifer Granholm, former governor of Michigan.
"Delegation is not a sign of weakness."
"Where there is no vision the people perish."
"A good leader is a person who takes a little more than his share of the blame and a little less than his share of the credit."
John Maxwell (born 1947) is an evangelical Christian author, speaker, and pastor who has written more than 60 books, primarily focusing on leadership. Titles include The 21 Irrefutable Laws of Leadership and The 21 Indispensable Qualities of a Leader: Becoming the Person Others Will Want to Follow. His books have sold more than nineteen million copies, with some on the New York Times Best Seller List, and translations in over fifty languages
"We are not interested in the possibilities of defeat; they do not exist."
Queen Victoria, Former Queen of the United Kingdom
"As we look ahead into the next century, leaders will be those who empower others."
Business Club | 23rd June 2017
The ability to communicate successfully is important for a rewarding personal and business life. In business this can include:
- your corporate marketing messages that help build your brand,
- your internal communications and interactions with your team, and
- Individual exchanges between your team and your customers.
In Britain’s economy today, many people’s job is to advise on a subject they know and understand. Einstein said “If you can’t explain it simply, then you don’t understand it well enough”. But a challenge for creative problem solvers who do understand their subject well enough is to be able to convey meaning - whether to a colleague or to a customer - so the recipient understands as well and has the clarity to decide what to do.
The meaning must pass through the adviser’s background and be formed by their ability, and also pass through the environment and the different background and ability of the recipient. Just providing a technical analysis doesn’t maximise the adviser’s value.
A model for successful communication
Using the model below as a guide we identified and unpicked the elements in each stage.
- You, the sender (Your background and attidues)
- Your ability to shape and send messages of your meanings
- The quality of the message (Substance, acceptability, form)
- The characteristics of the medium (Does it facilitate or deter the message?)
- The environment (External elements which help or block the message)
- The receiver's ability to receive
- The receiver's background and attitudes
Determinants of successful communications
1 & 7 Sender and receiver background
- Age, absolute and relationship to each other. Potential ramifications
- Reputations and attitudes to each other - and ramifications
- Motives for a beneficial outcome
- Recent experiences – uplifts, traumas, sickness, diversions etc.
- Habits, customs, rituals, taboos, prejudices, biases
- Publicity – desire for
- Education, travel, breadth of outlook
- Influential aspects: idols, models, aspirations
- Power areas: Where influence can be affected
- National, religious, racial heritage
- Self-image vs true or real image
- Social attitudes, politics
- Insecurities and strengths
- Specific knowledge of message area
2 & 6 Sender and receiver abilities (Skills in message sending)
- Experience, practice, breadth or scope of practice (sent this message before?)
- Preferences related to training (like what you do).
- Tools available, necessary equipment
- Physical handicaps (poor typing, stutter etc.)
- Mental blocks
- Awareness; ability to relate to other interests
- Attention span (propensity to distraction)
- Physical strength
3 Quality of the message, is it?
- Signposted - intention clear?
- Relevant to the receiver, to society, to the time, etc.?
- Complex? Too complex? Free of jargon and technical language
- In the right tone / empathetic
- Appropriate length (concise - too long or short?)
- Balance with other messages being sent (inc. via other mediums)
- Able to rise above distractions
4 Characteristics of the medium
- Compatibility to situation – appropriateness
- Multi-sensory stimulating
- Secure, or will the message be lost
- Enhance or distract the message (fax urgent?)
- The best medium
- Personal / intimate
- Normal for the recipient
- Resistant to environmental interference
- Clarity: Too obvious or too subtle
- Speed: fast or slow
5 The environment (Factors which represent noise or distraction)
- Complementary to the message
- Olfactory (coffee, food)
- Timely (before lunch, after a late night out)
- Symbolic (e.g. prejudice against the venue)
- Wrong company (inappropriate audience grouping)
Watch Daniel Simons' classic video below. It illustrates the way we filter what we pay attention to. Instead of logging every detail in our surroundings, we extract a few key features and rely on memory, or imagination, to fill in the rest.
AGN Live Country Guides
Business Club | 14th June 2017
Business Club | 19th May 2017
Peter Drucker, management consultant and author, calls outsourcing America’s fastest growing industry, as more and more businesses outsource non-core business activities to focus their attention on their core competencies.
When it is done successfully this can save money and help competitiveness, especially when operating in a global market. British Airways for example saves$23m for every 1,000 jobs the airline sends to India.
Many business have a tendency to consider outsourcing for top and basic level support services, such as strategic business advice and premises cleaning services, but not much else in the middle. Certainly the business consultancy industry grew much quicker than many of its clients, with global revenues growing by 7% in 2016 to $133bn
What might be outsourced?
In reality, there are numerous activities for which outsourcing may be appropriate including:
- Data entry/processing.
- Office services / cleaning.
- Creative work.
- Customer support.
- Compliance & risk assessment.
- Web design and search engine optimisation.
- IT functions, e.g. programming, development and maintenance.
- Telephony / call centres / PA / virtual assistants.
- Health & safety.
- Accounting / bookkeeping.
- Legal services.
- Marketing / PR / Copywriting.
- HR Employee benefits management.
- Strategic planning.
Advantages of outsourcing
When done well, outsourcing offers advantages such as:
- Reduction of operating cost. And it’s scalable – you pay for what you use.
- Increased productivity – frees up your time to focus on what you are good at and what will drive the most value to your customers.
- Leveraging specialist suppliers so you can access skills without having to master them internally.
- Flexibility. For example, if you decide to outsource your creative work to an organisation on the other side of the world, their team can be working while you sleep.
- Avoiding capital investment
- Project acceleration and continuity (for example sickness o=in your own organisation).
- Reduced employer headcount / obligations.
- Security and confidentiality.
- The time invested finding, training and managing outsourced workers. Unfortunately, often a bigger investment of time than you initially estimate.
- The negative PR that can arise if outsourcing results in job losses.
- Reduced control and the challenges of monitoring and managing the work of people in a remote location to whom you do not have access.
- Timezone differences. These can be good if work is being done whilst you are asleep but a challenge if you have to wait hours for a response to an email or work early or late to make a call to find out what’s happening.
- Potential loss of originality – are you just replicating what your competitors are doing?
- Loss of Intellectual property.
- Reduced effectiveness if the people you’re outsourcing to don’t understand the business as well as your team.
- Mislaignment of the outsourcers values and those of your organisation.
- Lack of face-to-face contact – will that make the relationship more challenging?
- Quality control.
In the experience of our guests, outsourcing is most likely to be successful if control is retained by a strong leader who really understands what is being outsourced, who can manage the relationship, share the objectives and success measurements and monitor the work produced/service provided. It’s the solution that needs to be outsourced, not the problem itself. Careful documentation of service standards / expectations and responsibilities is crucial, and this can be very time consuming.
Business Club | 21st April 2017
More often than not, conflict is a lose/lose situation for all involved. Relationships get damaged (sometimes irrevocably), morale is affected and companies can end up losing valued employees. The CIPD, the professional body for HR and people development, found that one in three UK employees (38%) have experienced some form of interpersonal conflict in the last year and one in ten are leaving their organisation as a result of conflict in the workplace. Click here for more information.
At our April GBC meeting, we took a look at some of the most effective ways to manage conflict in the office:
|Good practice||In practice…|
Make good relationships with your colleagues a priority.
Ask to have word privately.Treat the other with respect, be courteous, discuss matters constructively. Build mutual respect and understanding.
|Try to understand their point of view|
Give the other person time to explain the situation before going on the attack. You may find that you aren’t aware of the full picture.
|Set out the facts|
This helps to focus on the problem rather the emotions you may be experiencing. This really helps to focus on resolving the issues and doesn’t make the conflict quite so personal.
|Focus on shared goals/common ground|
In a workplace, we essentially want the same thing – the company to be a success. Maybe there are additional goals that you share – you both want to do a good job, you both want to be valued for the work for you, you both want to have good relationships with your colleague. Focus on this common ground to make you both more aware of your similarities rather than your differences.
Be open to the idea that a third position may exist
|Life isn’t black and white. One person doesn’t have to be completely right or 100% in the wrong. There may not be one “perfect” solution. By getting your heads together, you may be able to come up with a solution that can benefit all of you.|
|Find a third person to mediate|
If necessary, bring in someone who is more neutral to mediate, especially if you find you can’t resolve the conflict yourselves or if it’s escalating.
|Pick your battles|
It’s worth giving a lot of time and thought to whether a conflict helps you move closer to the goal in mind.
|View conflict as opportunity|
Conflict is never pleasant. But, if managed well it can be an opportunity to get to the nub of an issue and help you resolve any underlying tension.
In an ideal world, conflict just would not happen in the workplace. But with so many personalities (and egos), competition for attention and promotions, and different working styles, conflict is an inevitable part of work. And it doesn’t have to be a bad thing. If you can quickly resolve the issues that are bubbling up effectively, you may well end up with a team that is stronger, understands themselves and each other better and sets a strong example on how to resolve issues.
Business Club | 19th April 2017
Every organisation is susceptible to a crisis. And social media means that news moves faster than ever. Not only that but what constitutes a crisis is changing. One fifth of British companies have experienced cyber-attacks in the last 12 months and who would have thought a year ago that crisis management firms in the US would be having to advise firms on how to prepare their organisation for a tweet from President Trump?
We’ve categorised the situations that could constitute a crisis into the following areas:
“Acts of God” don’t just impact your people and physical assets, they can also impact the service you provide. For example, if a disaster hits one of your suppliers in another country how are you going to continue to deliver the same service to your customers?
Data breaches and cyber security
The British Chamber of Commerce released a survey this April (2017) that found that one fifth of British businesses have been on the receiving end of a cyber-attack in the past year. Organisations including TalkTalk, British Gas and Yahoo are just a few of the household names who have fallen victim to this type of attack.
This shows that organisations need to be prepared for ‘when’ not ‘if’ they experience a cyber-attack. An added incentive to be proactive include the upcoming General Data Protection Regulation which will introduce stricter penalties for firms that suffer data breaches. From 2018, companies could be fined up to 4% of their global turnover or 20m Euros – whichever is larger.
Sometimes an individual who doesn’t work at your organisation can cause a PR crisis for you. Just look at the big crisis management firms in the US who are having to design plans in case of a tweet from President Trump. Whether it’s a positive or a negative tweet – either can have an adverse effect on the organisation’s performance. Outdoor clothing company, LL Bean experienced this when Trump praised them causing a customer backlash with previously loyal consumers throwing out their LL Bean products.
A recent example is Samsung’s Galaxy Note 7 phones catching fire cost the organisation at least $5bn and had far-reaching PR implications.
As they say, “to err is human”, so preparing for potential mistakes made by your people is essential. It may be that one of your employees makes an inappropriate comment on social media or at a public talk. Back in 1991, Gerald Ratner of Ratner jewellers called his products, “total crap” wiping a whopping £500m from the value of the company.
One of the most common crises are criminal. Be it theft (stock or data), cyber-crime, terrorism or accounting. One of the most high profile cases of accounting fraud was the bankruptcy of the energy trader, Enron, back in 2001. Investors poured billions into Enron as it reported strong profits only to see stock dwindle to nearly nothing amid doubts about the reliability of their financial statements. The scandal led to the demise of auditors, Arthur Andersen. Shareholders lost $74bn, thousands of employees lost their pensions and jobs. Unsurprisingly, it was cited as the biggest audit failure.
Often, when a crisis arises, it is a combination of the above categories, for example, internal fraud (your people and a criminal act).
A good leader will make sure there’s a framework plan – but perhaps more important, are the qualities the leader embodies during the crisis. In our discussion at the Godalming Breakfast Club, we discussed the leadership traits we believed were necessary in a crisis:
- Stay calm as this will build credibility amongst your employees.
- Communicate, communicate, communicate - even when there is little or no good news. Communicate what you know.
- Respond quickly time is of the essence, especially knowing how quickly news travels on social media. Inform your people and your customers as soon as possible. On that note, make sure you have ways to contact your clients quickly and directly.
- Be honest and contrite, especially if it’s something you are to blame for. Apologise, say you’ll fix the problem and give the facts. It will help your credibility and will help you regain customer’s trust.
- Care – and show you care. Look after your people and understand that they will need time to recover and get back to normal.
- Provide clear direction to remove any unnecessary uncertainty and to get people back to normality, or at least a new normal.
- Provide hope to help people see beyond the current crisis
- Reassure your clients as without about your clients as without them there is no business.
- Be visible Make sure you’re “in the thick of things”. It’s morale-boosting and shows your employees that you’re all in it together.
Flexible working and the modern office
Business Club | 28th February 2017
Back in 1980 Dolly Parton sang about the frustrations of the traditional working culture. Her classic song is a workers anthem and most people at one time or another will have probably agreed with the refrain, ‘Working nine to five, what a way to make a living!’
Nearly four decades later developments in technology and changes in our culture and legislation have made many people question whether the traditional office is the best way to organise a workplace. Is it the optimum way to foster loyalty and employee satisfaction? Do we produce our best work in that environment?
Some companies are taking the traditional office as a workplace and completely turning it on its head.
What are the benefits?
Companies are finding that a flexible approach makes it easier to attract and retain talent.
Vodafone conducted a survey in 2016 and out of 8,000 employees found that 83% said adopting flexible working had increased productivity and 61% said that it had helped increase company profits.
Sweaty Betty, a winner in the Healthiest Employees category (medium-size companies in the Britain’s Healthiest Workplace awards), believes a rigid attitude to bums on seats and working hours is a thing of the past.
"We trust our team and operate on a flexi-hour policy," says Jessica Howden, people and events co-ordinator. "If a team member would rather leave earlier in the afternoon because of a long commute, they can start earlier in the morning. Our working hours are not set in stone."
A winner in the Healthiest Employees category (large in the Britain’s Healthiest Workplace awards), Microsoft operates an "Anywhere Working" initiative that allows employees to choose where, when and how they work.
"It enables employees to work from home, in another Microsoft office or remotely, on an ad hoc basis," says Theresa McHenry, senior HR director. "This flexibility allows people to choose their environment to fit the task at hand, or manage unexpected family commitments or transport disruptions."
All employees have a legal right to request a flexible working arrangement and employers have to make sure they have a policy in place to deal with these requests. See our 2014 guide here (www.shipleys.com/business-club/past-meetings/the-flexible-workforce1) or www.gov.uk/flexible-working/overview for more information.
In spite of these legal rights for employees, some employers still encourage a culture of ‘presenteeism’ with the notion of workers pulling ‘all nighters’ or being chained to your desk from 6am as being a sign of hard work and productivity worn as a badge of honour.
What does a truly flexible workplace look like?
Google recently topped Business Insider’s 2016 list of the 50 best companies to work for in America.
Google allows employees flexibility to work on passion projects. Workers have on-site childcare, generous paid parental leave, laundry and fitness facilities, healthy and gourmet meals, on-site massages, free fitness classes, gym memberships, generous holiday plan.
They work a lot but they don’t have to do all of it chained to their desks. There are free wifi-enabled shuttles to and from work. And, only 28% of employees work from home or telecommute some, most or all of the time.
The work is demanding and they encourage employees to set ambitious goals for themselves, but they don’t place unreasonable expectations on people to meet these goals and instead make a point to help people learn from their failures.
The modern workplace
It’s understandable if smaller companies or those in different sectors look at a modern technology giant like Google and they’re not able to relate to that kind of arrangement or provide that kind of set up for employees, so they dismiss it as unachievable.
However technology enables people to work in increasingly flexible ways in many sectors, and more and more companies are embracing its potential. It should be a valid alternative to work from home, or not ‘normal’ office hours, and it’s not always difficult or expensive to set up.
The benefits of coming into the office and working within a team shouldn’t be overlooked, so companies need to create a space that encourages productivity and collaboration.
Many employees have long commutes or interests and responsibilities outside of their jobs. If their employers can help them achieve more of a work-life balance by adopting a flexible approach, it could be argued that they are creating the right kind of environment for them to fully engage with their work and be truly productive.
Ultimately companies need to know and trust their employees and enable them to do their very best work. Sometimes that will mean them coming into the office, working with colleagues and getting on with things; other times, it means cracking on with a difficult report at home, while waiting for a plumber to arrive.
Whether it involves an early start or a late night, it’s important for employers and employees to be flexible with each other and to keep the lines of communication open.
Is personal effectiveness all about good habits?
Business Club | 23rd February 2017
What makes us effective? Is it all about good habits? Aristotle said that, “Excellence… is not an act but a habit” and given that we repeat about 40% of our behaviour each day, our habits can really shape our present and our future. But are the habits we have helpful or unhelpful? And, if the latter, how can we change them so we increase our personal effectiveness?
Why are habits important?
One of the main benefits of developing helpful habits is that it gets you out of the business of having to use willpower. You don’t want to have to go through each day focusing your energy on making conscious healthy choices. Decision-making can be draining and demanding. You want to put that behaviour on automatic. Make it a habit.
In the book, ‘Willpower’, the psychologist Roy Baumeister and his co-writer, journalist John Tierney, studied high functioning individuals. They expected them to use a lot of willpower but found that they actually used very little. A lot of their behaviours had been made into habits. Which meant that when they needed to use willpower, they had a lot in reserve.
How do we form a new habit?
Stephen Covey’s bestselling book ‘Seven habits of highly effective people’, is one that most people have either read or heard of. Covey discusses his approach to forming habits:
|Knowing which habit you want to adopt.||Understanding the best ways to start adopting this habit.||Know the real reason why you want to adopt this new habit. What are the real benefits/rewards?|
We know that each habit actually has three components:
- A cue - basically a trigger for the behaviour to start unfolding
- A routine - what we refer to the habit itself
- A reward - which helps your brain decide if this new habit is work remembering.
When people think about habits, they focus on trying to adopt the desired behaviour or the routine, but it’s actually the cue and the reward that determines why a habit forms.
How long does it really take to cultivate a new habit?
So how long does it actually take to make this behaviour a habit? The 21 or 28 day rule is often cited but in reality it varies. In a study carried out at University College London, 96 participants were asked to choose an everyday behaviour that they wanted to turn into a habit. They all chose something that could be repeated every day. They found that, on average, it took 66 days to form a habit but there was considerable variation in how long habits took to form depending on what people tried to do. Easier habits took less time; harder habits (for example exercising) took more time.
The Seven Habits of Highly Effective People’
Stephen Covey makes a convincing case for why you should create habits based on solid principles.
He talks about moving from independence, habits that are based on self-mastery, to interdependence, habits based on working together to achieve a common goal. The habits he outlines (see below) encourages an individual to develop independence before building on this to develop a state of interdependence.
Habit 1: Be proactive – knowing your personal vision
Habit 2: Begin with the end in mind – developing your personal leadership. What do you want to achieve today?
Habit 3: Put first things first – Principles of personal management
Habit 4: Think win/win – Principles of interpersonal leadership
Habit 5: Seek first to understand and then to be understood – Principles of empathetic communication
Habit 6: Synergize – Principles of creative cooperation
Habit 7 focuses on self-improvement:
Habit 7: Sharpen the saw – Principles of balanced self-renewal.
Developing habits for positivity
Author of ‘The Happiness Advantage’ Shawn Achor has some tips on training our brains to be more positive. Achor suggests trying to develop one of these habits and integrating them into your daily routine:
- Gratitude: Identify three new things to be grateful for each day.
- Meaningful experiences: Take two minutes each day to write down positive meaningful experiences
- Exercise: For at least 10 mins each day
- Meditate: Focus on the task in hand, at your desk for two mins every day.
- Random acts of kindness: Help your co-workers or others in your social support network. Giving contributes more to your happiness than receiving.
Achor studied KPMG tax managers in New York during their busy tax return filing season. He split the team into two – a control group and a test group. Those in the test group chose one of the five training ideas listed above and did it each day for three weeks. On every metric, the test group performed better than the control group.
Four months later, he subjected both groups to ‘Life satisfaction scale tests’ (the maximum is 35 points). The control group scored 22.96, whereas the test group returned 27.23, significantly higher. The three weeks of training had a lasting effect – four months later happiness had become a habit.
So not only can changing your habits make you personally more effective, it can also dramatically improve the quality of your life. The writer John Irving once said that ‘Good habits are worth being fanatical about,’ and it’s hard not to disagree!
Why make a will?
Business Club | 31st October 2016
In our October Business meeting Stuart Dey and Martin Frost spent time with delegates discussing what the benefits are in making a will and what they might need to consider.
The views expressed here include their own research and thoughts as well as suggestions contributed by our business club members.
Some non financial Benefits from making a will
- The reassurance of making sure that your estate goes to the people and causes you care about.
- To avoid costly and damaging disputes. Disputes about wills can split families and be very expensive to resolve.
- Looking after your loved ones and making sure that your widow and children are provided for.
- Making sure that assets stay within the family and are passed down the generations.
- Dying without a will means that assets are divided according to the rules of intestacy, which might mean that unmarried partners get nothing.
Some financial Benefits from making a will
- A will can be used to set up a trust for children within the family.
- Wills can be used to mitigate Inheritance Tax.
- Intestacy can be costly.
- If you run a business it can be a key part of your succession plan.
- Deeds of Variation can enable you to change a person’s will after death. It can help to reduce tax liability or provide an opportunity to move the deceased's assets into a trust.
- Life assurance can be written under trust to minimise inheritance tax liability.
More information and other things to consider
- With the average value of a semi-detached house in London now over £600,000 many people have found themselves affected by inheritance tax. The new residence nil rate band is an issue to consider, please read our article for more information.
- For more information on wills, please read our Shipshape article ‘Where there’s a will, there’s usually a way’
- Our really useful personal affairs checklist keeps all your information in one place and can help make your executors job easier.
Specific advice should be obtained before taking action, or refraining from taking action, in relation to the above. If you would like advice or further information, please speak to your usual Shipleys contact.
The EU Referendum
Business Club | 15th April 2016
Mind your own business!
Our business development director Stuart Dey recently ran a breakfast meeting at which the EU referendum was discussed. The views expressed here include his own research and thoughts as well as suggestions contributed by our business club members.
Should we stay or should we go?
David Cameron won the 2015 general election on a pledge to hold an in-out vote on the UK’s membership of the EU. With the rise of UKIP’s popularity and concerns about immigration and security, perhaps he was picking up increasing public discontentment about the power and influence Brussels has over the UK. UKIP won 3.8 million votes but only one seat. No state has ever left the EU before so it’s impossible to predict what the outcome will be. Here are some of the areas that campaigners are concerned about.
According to the Office of National Statistics (ONS) in June 2015 since its formation in 1993, the European Union has become larger than any individual economy in the world and in 2003 it became larger than the US. Whilst it does have the largest economy, its share of the global economy is dwindling due to strong growth the Brazil, Russia, India and China economies.
Britain’s dependency on EU trade is lower than it has ever been - exports from the UK to the EU grew on average by 3.6pc from 1999 to 2014, below the 6.5pc rise in exports to non-EU countries. As a result, the proportion of UK exports destined for the EU has dropped from 54.8pc in 1999 to 44.6pc in 2014. This decline seems likely to continue and there seems to be a shift in the destination of UK exports.
Trade figures are also difficult to interpret due to what is known as the ‘Rotterdam (or Antwerp) Effect’ – simply put this is the fact that many British exports to non-EU markets are shipped through Antwerp and Rotterdam, thus showing up in the figures as exports to the EU, so it is difficult to see the full picture when we are looking at the UK’s trading position with the EU
With or without the Rotterdam Effect the UK still does a substantial amount of trade with the EU and we would want to continue and there is no reason why this can’t happen. If we take Germany as an example - in 2015 the top country of destination for German exports was actually the United States.
Another thing to consider is the Transatlantic Trade and Investment Partnership (TTIP) negotiations. This is a series of trade negotiations between the EU and the US. TTIP is about reducing the regulatory barriers (in areas like food safety law, environmental legislation, banking regulations and the sovereign powers of individual nations) to trade for large business.
US trade representative Michael Froman said that if Britain left the EU it would face the same tariffs and trade barriers as other countries outside the US free trade network and that “I think it’s absolutely clear that Britain has a greater voice at the trade table being part of the EU, being part of a larger economic entity.”
Cost of being an EU member.
According to the EU website The EU budget was about €144bn in 2013 (Britain contributed about €17bn to the pot), it stands at about 1% of the 28 EU countries' gross domestic product (GDP) – the total value of all goods and services produced in the EU. The EU budget is always balanced, so there is no deficit or debt. And 94% of what is paid into the EU budget is spent in the EU countries on policies and programmes that benefit citizens directly.
According to the EU Commission's office in the UK the Operating Budgetary Balance - the gross sum the UK puts into the EU budget, minus the money that comes back to the UK at £6.7bn. Although the UK puts more in than it receives from the EU, the Confederation of British Industry believe that it is worth the cost to have access to a $16.6 trillion a year Single Market of 500m people. The EU has helped open global markets to UK firms on strong terms and membership has increased investment into the UK.
There is no doubt that the migrant crisis will have a big impact upon the referendum debate. Leaders can’t seem to agree on how to deal with it and there doesn’t seem to be an end in sight.
The leave Europe campaigners claim that the UK is at risk from migrants arriving here after being granted EU citizenship from the country that they arrived in. The 2003 EU Directive on the status of non-EU nationals who are long-term residents. This gives them the same rights as that of EU member state’s nationals in certain areas, although it does not bestow an absolute right to free movement on par with EU nationals.
The UK is actually exempt from this directive so it does not have to allow non-EU nationals who are long term residents of other member state into the UK if it does not want to. If it does allow them entry to the UK it is on the same basis as other non-EU nationals, i.e. meeting any relevant skills and income criteria. Therefore, the UK already has additional controls over immigration policy compared to other EU member states. Migrants could claim citizenship of the countries that they are living in, but this is often a long and complicated process.
In the year ending September 2015 net migration reached 323,000, which is higher than the government’s target of 100,000. The government are taking steps to make it less attractive to move to the UK (such as the proposals to curtail child benefit being paid to children not living in the UK) but the UK needs talent and skills from around the world to grow a strong economy.
The leave campaigners think that parliament would regain its sovereignty and would be better able to connect with voters. It would be free from a lot of European interference, whereas people who want to remain think that we have benefitted from EU employment laws on areas like paid holiday and maternity leave and we might be gradually stripped of these rights.
Andrew Bailey, deputy governor of the Bank of England recently spoke of regulatory issues and the EU, saying it wasn’t as clear cut as it seems “You wouldn’t immediately assume that there is a golden world out there where it is all different."
Looking at TTIP – if we left the EU and stayed in the European Single Market we would have to apply the EU laws and regulations whilst not being able influence them in any way, so we would still have to implement all of the changes in EU legislation that derive from TTIP.
On the other side, some EU regulations have given us lots of freedoms and improved the quality of our life. We are able to live, work and retire anywhere in Europe, travel is easier and safer and consumer rights have been improved.
There seems to be an idea that leaving the EU would bring upheaval for a short time and then lead to greater prosperity in the long term.
According to an article in the Daily Telegraph the average British household would be better off by nearly £1000 – we wouldn’t be paying fees to the EU, or towards the Common Agricultural Policy or Common Fisheries Policy. Clothes and household goods would be cheaper because there wouldn’t be bound by the EU rules which currently stand.
However there are fears that travel may become more expensive if we leave the EU – airfares may rise and the pound may weaken.
This is such a big issue and it is very difficult to predict what the economy will look like after either potential outcome.
According to Open Europe's comprehensive new report, UK GDP could be 2.2% lower in 2030 if Britain leaves the EU and fails to strike a deal with the EU or reverts into protectionism. In a best case scenario, under which the UK manages to enter into liberal trade arrangements with the EU and the rest of the world, whilst pursuing large-scale deregulation at home, Britain could be better off by 1.6% of GDP in 2030. However, a far more realistic range is between a 0.8% permanent loss to GDP in 2030 and a 0.6% permanent gain in GDP in 2030, in scenarios where Britain mixes policy approaches.
A recent open letter from 36 executives from FTSE 100 companies to The Times Newspaper urged people to vote to stay in the EU because “Business needs unrestricted access to the European market of 500 million people in order to continue to grow, invest and create jobs…We believe that leaving the EU would deter investment, threaten jobs and put the economy at risk. Britain will be stronger, safer and better off remaining a member of the EU.”
The Common Fishing Policy (CFP) is the EU’s way of implementing Europe-wide laws on fishing. The CFP was introducing in 1970 and it made Britain’s waters (British and Irish waters account for 60% of EU waters) a shared resource with other EU nations.
The leave EU campaigners would argue that the CFP “has been synonymous with the huge decline of our fish stocks, deterioration of the environment, wasteful discarding of fish, and the destruction of Britain’s fishing industry and communities.” According to Chris Muspratt from Get Britain Out.
However the fishing industry has seen recent growth - UK industry’s gross profit margin has increased from 5% in 2008 to 35% in 2014, which is a sign that the fishing quotas implemented by the CFP are protecting fish stocks and enabling a more sustainable model for fishing.
Welfare and Benefits.
Industry experts are concerned that parts of the NHS will have to be privatised if the controversial TTIP is signed. The Department of Skills and Business dispute this idea, but there is a real concern that the NHS could be privatised ‘through the back door’ by allowing large American Corporations to bid for contracts in the NHS.
David Cameron is negotiating a welfare deal to curtail child benefit and in work benefits to migrants from other EU nations in order to stop the high flow of migration to the UK, as part of his desired EU reforms.
Would Britain leaving the EU destabilise the rest of Europe at a time when there is public concern about the migrant crisis? George Osborne fears the economic and political aftershocks of a Brexit and Philip Hammond the foreign secretary has warned that the EU could ‘lurch in very much the wrong direction’
There is also a real worry that if Britain leaves the EU other countries might want to leave the EU. Looking at worldwide security there is a real fear that if Britain leaves the EU the EU may become weaker which could affect the balance of power and security in the Western World.
British customs and traditions.
When Britain joined the common market in 1973 an opinion poll asked British people whether they wanted to adopt more European ‘customs’ such as ‘more pavement cafes’ and ‘pubs open all day’ ‘coffee and a roll for breakfast rather than bacon and eggs’ and there was a real resistance to this. In 2016 these traditions and customs seem perfectly ‘British’ enough.
Traditions and customs tend to evolve and change as people change, and whether we stay in or leave the EU this will always be the case.
The power of positivity
Business Club | 13th January 2016
Mind your own business!
Our business development director Stuart Dey recently ran a breakfast meeting at which the power of positivity was discussed. The views expressed here include his own research and thoughts as well as suggestions contributed by our business club members.
How happy are you right now? Acknowledging that being happy will mean different things to different people at different phases in their lives. Is it determined by your genetics, your environment, some combination of the two or something else? Your family, work colleagues, physical environment and what’s in the news all play a part.
But in the context of your business and work, is how you feel now particularly important? After all, if I work hard and achieve success then happiness will naturally follow, right? Is it a sort of by-product or almost inevitable consequence?
There are a couple of problems with this idea. Firstly, when we set goals for ourselves (better car, larger house, higher income etc.) and achieve them our brain has a nasty habit of moving the goalposts - fancier car, even bigger house, more income, etc. The old goal has now become your new normal!
Secondly, and in this I must defer to research conducted by Shawn Achor of Harvard University who taught on the ‘Happiness Course’, our brain actually works the other way round. If you feel happy then Achor’s research concluded that you will work harder, faster and more intelligently.
Our view of the world
We all see the world through a lens and that lens shapes our view of reality. For example, I quite often notice Asian tourists in London wearing face masks – whereas the eight million or so who live here (except for a handful of cycle couriers) do not.
The way I see it, if the environment is hazardous then wouldn’t it make more sense for the long-term residents to take precautions – the risk to short-term visitors being relatively insignificant? But this is exactly the point the way those tourists see it – our air is excessively polluted so that masks make sense. As someone who rides a motorcycle, I’m more concerned about the traffic! My lens is different giving me a different view of the same environment.
The question is, can we change the lens and thus how we see things, so that we are happier and therefore more likely to be successful?
Training our brains to be more positive
Achor suggests trying to build at least one of these in to your daily routine:
- Gratitude: identify three new things to be grateful for each day.
- Meaningful experiences: take 2 minutes each day to write down positive meaningful experiences
- Exercise: for at least 10 minutes each day
- Meditate: focus on the task in hand, at your desk for two minutes every day. One delegate drew attention to the ‘Headspace’ app but numerous apps, websites, books etc. are available.
- Random acts of kindness: help your co-workers or others in your social support network. Giving contributes more to your happiness than receiving!
Is it worth trying any of these techniques?
If you like statistics, the research findings of Shawn Achor included:
- Optimistic sales people outsold their pessimistic counterparts by 37%.
- The percentage of long-term happiness determined not by the external world but by the way your brain processes the external world is 90%.
- The percentage of job successes which can be predicted by IQ is 25%.
- When in positive mode (as opposed to negative, neutral or stressed) our brains are 31% more productive.
Achor studied KPMG tax managers in New York during their manic tax return filing season. He split the team into two – a control group and a test group. Those in the test group chose one of the five training ideas listed above and did it each day for three weeks. On every metric the test group performed better than the control group.
Four months later he subjected both groups to ‘Life Satisfaction Scale Tests’ (the maximum score is 35 points). The control group scored 22.96, whereas the test group returned 27.23, significantly higher. The three weeks of training had a lasting effect – four months later happiness had become a habit!
Other techniques and ideas
One area which can have a big impact on our positivity is stress. Training intended to help people cope better usually includes consideration of its negative effects and this can result in delegates feeling more stressed! But it can also be a fuel for growth. Life changing experiences and achievements are rarely stress-free. If you can differentiate causes of stress that you can control from those which you can’t, one tip is to take steps to reduce or eliminate a cause you can affect.
Here are some other strategies which you might find useful.
- Dress: for the job you want, not the one you have.
- Act: as if you hold the position you desire – ‘fake it to make it’.
- Take responsibility: for what happens to you but to see the other perspectives.
- Relive successes: there are usually far more than you may think, and measure your personal success rather than by comparing yourself with other people.
- Words: use ‘but’ and ‘ah but’ sparingly.
- Problems, learning and solutions: learn from problems but don’t dwell on them – instead seek achievable steps that lead to solutions.
- Emotions & experiences: be aware of your own mood and invest in experiences rather than material possessions.
- Conflict: try to resolve contentious issues amicably and quickly.
- Role models and mentors: take a moment to think if this is worth pursuing for you?
- Plan: take time each day to look forward – not just in business (be prepared) but to other interests and recreation.
What do I do now?
Successful businesses often have a core team of people with differing expertise, experience and attitudes, including to risk. Holding a positive mindset is not the same as ignoring risks or being wildly optimistic. A positive approach is likely to mean you or your team are more effective and have the edge.
When we hosted our meeting on the power of positivity several months ago I was worried that the subject might not be well received by everyone. On the day, my concerns proved groundless, everyone really engaged with the topic.
Being aware, moment-to-moment, of one’s subjective conscious experience from a first-person perspective is Wikipedia’s definition of mindfulness. Everyone now seems to be talking about it and I recently noticed an advert on the London Underground encouraging mindfulness.
Ruby Wax, who graduated from Kellogg College at Oxford University with a masters degree in mindfulness-based cognitive therapy, has just released a new book Mindfulness for the Frazzled.
Should you and your team address the power of positivity to get long-lasting benefits in everything you do?
Business Club | 23rd October 2015
The price at which a service is sold is part of the marketing mix, a tool which is used to make decisions that leads to the execution of a marketing plan. When marketing for services, the “four P’s”, price, product, promotion and place are often supplemented by people, process and physical environment.
A recent Deloitte review concluded that pricing has ‘two to four times the impact on profits compared to the other business levers’. During the economic downturn, many businesses looked carefully at their own costs – many of which will of course be someone else’s sales. It follows that most people will have experienced pressure to lower or discount their own prices, and there is a general feeling amongst service providers that customers want ‘more for less’ and ‘value’. For a business operating on a 20% profit margin - where costs form 80% of normal sales - even a modest 5% discount will trigger a 25% reduction in profits.
Pulling the discount lever can be very dangerous. What’s your cost base compared to your competitors, locally, nationally and globally? Isolated action in one service line could damage the ability of the rest of the firm to win decent margin work. And actually it’s not too clear that discounting actually wins more work. With a product, the buyer is often able to make a reasonable assessment of quality in advance of the purchase. However, for services, one perceived indicator of quality is price – it both attracts and repels! In some aspects of professional services, such as a property conveyance, for example, the service has become more like a ‘product’ (e.g. Enact).
Will discounting win me more work?
According to some recent surveys, probably not!
Source: Beaton Benchmarks
We look at how to deliver perceived value (subjective) and get paid properly for the value delivered.
Before you take on the work:
- Include your pricing strategy as part of the marketing mix in your business plan. What's your position in the market – are you a sausage machine? And how do you justify your price? Not everyone can occupy the price point of slightly above average!
- What is your opportunity approval process - should you be pitching or offering to do it?
Working out your costs:
- Scope rigorously and monitor changes. Your garage may well call to ask if you want the wipers or brake pads replaced when your car is being serviced, and as result you are quite happy to pay a higher charge when you collect it. This contrasts with the position if the work had been done without your prior agreement. Professional services are no different?
- Is the estimate of cost reviewed in the light of actual performance and the tool updated?
- Right people, right skills, right thing?
- Distinguish efficiency and effectiveness.
- What is the real cost and margin?
Setting your price:
- Train, resource and support those who price. Provide tools and parameters.
- Market price: what is the state of the market? Have we, since 2008, got into the habit of discounting? Has the market moved on?
- Confidence: if your cost is in line with the market price be confident about achieving it.
- Track record: give evidence of your skill, expertise and past performance / references.
- Hourly rates: few customers are prepared to accept an indeterminate cost based on what they perceive to be an unreasonably high hourly rate, where the clients desire to get the work done in less hours is not aligned with the provider’s goal of more time spent and a higher fee!
- Scope very carefully, giving options where appropriate.
- Look at the overall bundle of services performed for that client. Differentiate your services in the context of the value for the client?
Agreeing the price:
- Discuss the price up front. It’s usually better to know your potential customer's perception of the value of your work is low (and maybe lower than your cost) in advance of you doing it and then having to spend time resolving the ensuing dispute over the bill. Or worse, after the ‘Solicitor’s letter’.
- Have conversations with the client to understand their position and focus on what is relevant to them;
- The organisation and that individual's role in the organisation
- Sometimes clients don’t know the questions to ask or understand the issues, and work, involved.
- Convey an overview understanding of the work you need to do.
- People buy from people and the research shows that the sales process is still crucial.
- Scope, scope, scope! – monitor and communicate. It might be possible to lower the price by reducing the scope.
- Focus on value not cost (but be conscious of the cost / affordability). The decision is easy when the value is clear.
- Capture all value through ‘Price sensitivity analysis’
- Collaborative approach. Align the firms and the clients’ interests, maintaining honesty and integrity. Might the firm be allowed more time to perform the work so that it could initially be used to develop more junior people?
- Be flexible – a menu of options (not just a discount).
- Uncertainty not liked. Would you ask a builder to extend your house without agreeing a price?
- Fixed fees. Risk – on whom. Impact on price? Can you capture the risk premium? Have you done similar work before?
- Payment flexibility. If a potential customer does not have the budget for your service in the current period, could part of the work, and/or the bill, be deferred with clear agreement on prompt payment at that time? Generally, send bills promptly when the work has been completed and the customer remembers what was involved and is more likely to recognise the value.
The clients' preference
In a survey conducted by Altman Weil, ‘in house legal’ were asked: excluding ‘bet the company’ matters, if you could select only one of the following legal advice pricing preferences, which would you want most?
The results placed a low price 4th.
There are numerous pricing strategies available, but not all will be relevant to your business, including:
- Line: limited no. of prices for all products
- Loss leader: below operating margin, relieves on connected purchase of higher margin items.
- Premium: at or near celling to attract buyers seeking quality and validation of self-worth (not just Rolex, Bentley, but also pacemakers)
- Price skimming: start high (few sales to break even) and lower over time. Targets early adopters with relatively low price sensitivity.
- Price discrimination: Different price for buyers in different markets
- Yield management: varies according to demand for fixed perishable resources (airline seats)
- Price points: Demand curves are like a series of waves, at some points small increases cause major volume reductions
- Psychological pricing (price ending/charm pricing): 99p syndrome – causes price points
- Bundle pricing: (package deals/anthologies e.g. DVDs or TV/internet/phone) can drive out rivals.
- Value-based pricing: Worth to customer rather than cost to supplier. Based on actual needs.
- Geo pricing: Integration of geographic intelligence e.g. location of customer – at that time.
- Surge pricing (Uber – US patent 2013).
The effect of discounting on profits was mentioned in the introduction, but what about the effect on profits if prices can be increased? In the example at the beginning, a 5% increase in price equates to a 25% increase in profit. A 10% price rise results in a 50% increase in profits.
‘Countless market-based research reports demonstrate unequivocally that a 5% to 15% increase in turnover is readily achievable using a more sophisticated approach to pricing’ (Deloitte Consulting, PwC, KPMG).
Pricing should not merely be an administrative function. Is it an art, a science or perhaps a skill (an ability to do an activity or job well, especially because you have practiced it)? Whichever, it merits proper attention in your business.
Defining core values
Business Club | 30th September 2015
Is it worth establishing your core values?
In a word, ‘yes’!
Core values are principles that guide all of an organisation’s actions and establishing them can really make a big difference in areas such as:
- Developing your people: By ensuring that the core values are understood throughout all layers of the organisation, incorporating them into individual targets and using them to measure and reward individual performance, they become the heart of your culture. The important thing is to ensure that they are lived in the day-to-day functioning of the company, not just rolled out at induction by HR. They can also be an invaluable in determining the right course of action when things don’t go quite as planned!
- Recruiting new staff: By allowing your core values to guide your hiring decisions, you increase the odds of recruiting people who best fit your team which can lead to increased employee engagement and employee retention.
- Managing customer relationships: Communicating internally and externally about your core values can help you attract customers with similar values, ease the process of the setting of customer standards and of aligning expectations between customers and your staff.
- Building the brand: In this customer-driven marketplace, it’s important that customers feel something about the brand. Instilling your values in your brand helps you to stand out, communicates externally what you stand for and how you fit into your customers’ world.
Case study - Values and metaphors
Expressing core values in terms of metaphors can help bring them alive. Some people recommend avoiding using individuals as these are more influenced by personal perceptions. For example, not everyone was a fan of Margaret Thatcher, but most people agree that a reliable, effective and energy efficient washing machine is a desirable one!
The diagram is an example of the core values of a business and associated imagery.
Examples of the core values of others include:
Note how unique the values are to each organisation and how these values really are part of these brands’ DNA.
What makes advisers commercial?
Business Club | 3rd July 2015
The seven habits of a commercial adviser
1. Understand the client's desired outcomes: The adviser needs to alter their mindset on what counts as success – to helping the client achieve their goals – as opposed to good work or a ‘deliverable’. For example, the adviser might prepare a report on a transaction contemplated by the client – but the report is not the clients' goal - their goal is a successful transaction (acquisition or sale).
Tip: Focus on helping clients implement the advice.
2. Understand the business context: An in-depth understanding of the business context in which the client operates is a pre-requisite for really commercial advice. Clients use this as a criteria for selecting advisers.
3. Understand the economics: Numbers are the language of business. The value of an issue, and thus the advice in relation thereto, reflects how likely something is and the financial implications of it.
Tip: Avoid delineating between commercial and legal points.
4. Understand the people and their interests: Their style of doing things and what drives them as individuals. Giving advice is not just a logical exercise based on technical expertise, it must respond to the client’s emotions.
Tip: Keep your own ego out of the deal and remember your principal loyalty is to the client – not your firm – even if that involves collaborating with a competitor (other advisor).
5. Agree the scope: Clients often recognise the importance of scoping a project but may lack the technical expertise to provide this themselves. Client frustration occurs when things overrun or advisers retrospectively ask for additional fees. The scope of the project can be linked to pricing options that give the client some choice and control.
Tip: Spend time on scoping - it avoids misaligned expectations, eliminates ‘nice to have’ (but not really valuable) aspects, and avoids scope creep (thereby maintaining profitability).
6. Build practical solutions: Do you solve the problem so that they achieve their goal, or add complexity as is often alleged? This habit includes some creativity. Habits 1-5 are no use without a neat solution – but a neat solution is most unlikely without habits 1-5.
7. Communicate for impact: Visual , succinct and with formality to match that of the client.
Building commerciality skills
Meridian West’s research identified five steps to building commerciality skills:
Demonstrate leadership: You are going to struggle if your leadership team doesn’t have it, thinks they have but don’t, or doesn’t think it’s important.
Develop deep insight: into the client, their sector and the wider business world. Key account planning, client feedback, sector groups, knowledge management and face-to-face time with clients are important.
Redesign the client experience to provide more added value: Hosting client round tables, hiring senior level client-facing account managers, procedures to clarify new clients goals and objectives, good project management, joined-up advice, client friendly communications and project outcome evaluation, for example.
Tools and training: Beyond technical skills and the occasional sales and client service course. Not just informal but also formal commerciality training linked to progression is one idea.
Reward success: The common focus on the billable hour is perhaps the biggest barrier to commerciality. Commerciality evaluation, mentoring and knowledge-sharing are alternatives.
Special thanks to Ben Kent of Meridian West for sharing their research, conclusions and images.
Does local matter?
Business Club | 28th May 2015
The overland Silk Road that connected Asia, Africa, and Europe is a good example of the transformative power of translocal exchange that existed in the European view of the world prior to contact with the Americas. Though silk was the major trade item from China, many other goods were traded, and religions, philosophies, technologies and diseases also travelled along the Silk Routes. More recently mobile phones and the internet have transformed the way we globally interact and do business.
What is important to us locally?
We asked whether ‘localness’ matters now and people’s thoughts included:
- What is local to you? Somewhere unique? How does this fit with Globalisation?
- Personal network friends and business contacts
- Community familiar faces, places and groups
- Local history, contributes towards our sense of identity
- Environment & Amenities: Green space / parks, recreational and sports facilities, buildings, shops, cinemas, libraries etc
- Business: Markets / customers and suppliers. Local shops. Personal face to face service, which may justify a higher price, can be difficult to maintain if it entails excessive travel. There was a perception that local products and produce might be of a higher quality, but for items such as CDs and books, those available locally might be more expensive. Specialist items commanding a relatively high price such as vinyl records tend to be sold locally.
- Opinions and views Our local environment and the people surrounding us have a major role in shaping our views – even including the Political party we vote for at a General Election.
- Big society
Our local high street
Most people expressed the view that the local high street in some form was important. If we want local shops then we need to give them our custom. Reference was made to the report on the future of the high street by Mary Portas. This included the following sections:
- Getting our town centres running like businesses
- Getting the basics right to allow businesses to flourish
- Levelling the playing field
- Defining Landlords’ roles and responsibilities
- Giving communities a greater say
- A few words of advice to Britain’s shopkeepers: Experience, service and specialism
- Re-imagining our high streets as destinations for socialising, culture, health, wellbeing, creativity and learning
The new economic foundation research
Foresight, an organisation which helps the UK government to think systematically about the future commissioned nef to develop ‘five ways to well being’: a set of evidence based actions to improve personal well-being. nef is "an independent think-and-do tank that inspires and demonstrates real economic well-being" and the project which was based on analysis of third party research, concluded: (www.neweconomics.org/publications/entry/five-ways-to-well-being-postcards)
- People connection. Connect with the people around you. With family, friends, colleagues, and neighbours. At home, work, school or in your local community. Think of these as the cornerstones of your life and invest time in developing them. Building these connections will support and enrich you every day.
- Being active. Go for a walk or run. Step outside. Cycle. Play a game. Garden. Dance. Exercising makes you feel good. Most importantly, discover a physical activity you enjoy and one that suits your level of mobility and fitness.
- Take notice. Be curious. Catch sight of the beautiful. Remark on the unusual. Notice the changing seasons. Savour the moment, whether you are walking to work, eating lunch or talking to friends. Be aware of the world around you and what you are feeling. Reflecting on your experience will help you appreciate what matters to you.
- Learning. Try something new. Rediscover an old interest. Sign up for that course. Take on a different responsibility at work. Fix a bike. Learn to play an instrument or how to cook your favourite food. Set a challenge you will enjoy achieving. Learning new things will make you confident as well as being fun.
- Give. Do something nice for a friend or stranger. Thank someone. Volunteer your time. Join a community group. Look out, as well as in. Seeing yourself, and your happiness, linked to the wider community can be incredibly rewarding and creates connections with those around you.
Task two- Quiz
asked people about the Surrey South West partliamentary constituency for which the recent general election results were: 1 Jeremy Hunt (Con 59.9%), 2. Mark Webber (UKIP 9.9%), 3. Howard Kaye (Lab 9.5%), 4. Louise Irvine (NHA National Heath Action 8.5%), 5. Patrick Haveron (LD 6.3), 6. Susan Ryland (Green 5.4), 7 Paul Robinson (SN 0.6).
The answers for Surrey South West and the UK are highlighted:
Question 1: For every 100 people who could vote – howmany did?
Question 2: What is the average age here?
Question 3: For every 100 people who live here, how many were born outside the UK?
Question 4: For every 100 people, aged 16 and over how many have at least a degree level qualification?
Question 5: For every 100 working age adults, how many claim Job Seekers Allowance?
Question 6: What is the average weekly full-time earning for residents who are employed?
Question 7:For every 100 people, how many describe their own health as 'good' or 'very good'?
Question 8: For every 100 who are employed here, how many work in the public sector?
Question 9: What is the average property price in this constituency?
Possible tax saving ideas
Business Club | 20th February 2015
Task 1 - tax saving scenario
Our delegates were asked to note points to be raised with a tax specialist in connection with the scenario (reproduced below). Issues raised included:
A. Company cars
Victor has been paying personal tax of approximately £12,000 per annum on the £26,250 benefit in kind attributable to the Range Rover company car (£75,000 list price when new @ 35%, taxed at 45%). For 2014/15 he only had it as a company car for six months so the benefit was £13,125.
Now that it is available to his wife, by virtue of her employment with the company, the personal allowance and her basic rate band may significantly reduce the tax payable to approximately £3,000 per annum (assuming she has no other income) or £5,250 per annum if the benefit is taxed at the basic rate.
It therefore worth the Greens considering buying the car from the company – it’s worth about £5,000. Mrs Green could run it personally and charge the company for business travel (45p/25p per mile). Of course she would then be personally responsible for maintenance and repairs but the ongoing tax cost would be avoided.
There is no benefit in kind attached to the Tesla electric car for 2014/15 but next year it will be 5% or £4,000 per annum. The company should be able to claim the whole of the purchase price as a deduction against its trading profits (100% FYA). The car is exempt from road tax and the London congestion charge.
B. Mobile telephone
Victor's company could provide him with a mobile phone and meet the cost of business and private calls without a benefit in kind arising to him. At present the cost of the phone (£720 every 18 months) and private calls (£15 / month) are met by Victor out of his after tax income. Getting him the £660 annual expense costs the company (after corporation tax relief) over £1,000 per annum. If the company incurred and paid these expenses directly, the net of tax cost would be just over £500, saving over £500 per annum.
C. Marginal tax rate and expenses
Victor's £85,000 salary, car benefit of £13,125 (half the year of the Range Rover £75,000 list price @35%) and bank interest @say 1.5% of £900 and proposed £10,000 bonus, depending bonuses declared to cover past expenses might mean his income is in the £100,000 - £120,000 60% marginal rate band. This high marginal rate is due to the withdrawal of the personal allowance. This and employers (13.8%) and employees (2%) national insurance contributions (NIC) on the bonus need careful thought, as do other reliefs.
The £10,000 bonus plus employers NIC amount to £11,380 - or £9,100 after corporation tax relief – might put just £3,800 in Victors pocket. If the company simply reimbursed these expenses Victor would have no personal tax liability and the cost to the company would just be £3,800 (no corporation tax relief) - saving the business about £5,300. As this is just two or three months expenses, the annual saving could amount to be around £20,000 (note Victor's marginal tax rate at higher income levels would reduce to 45%). He may also consider what other expenses associated with his home office should be reclaimed from the company.
D. Other family members
As his wife, son and daughter all work for the business they could be employed by it. As they have no other income (except of course the wife’s benefit in kind on the Range Rover – unless this is bought from the company as outlined above) this would take advantage of their personal allowances and basic rate bands, rather than the 40%, 45% or 60% marginal tax rate suffered by Victor. They may be some additional NI cost - but this is likely to be significantly less than the tax saving and this also builds up a NI contribution record for the other family members. Even with the company car, if Mrs Green is paid say £10,000 per annum this would save tax of £2,000 each year. If Victor is funding his children and their work done for the company is worth say £10,000 each, then employing them at this level would save Victor over £9,000 each year!
E. Profit extraction
Victor should review his on-going mix of his salary and dividends, as the latter are likely to be more tax efficient. Dividends are not subject to NI.
F. The bar
The £25,000 investment in the bar (before 5 April 2014) was structured in accordance with the rules of the Seed Enterprise Investment Scheme (SEIS), which gave Victor a £12,500 (50%) income tax credit, and meant that any gain on sale of these shares after at least three years would be exempt. In addition it means that £12,500 of other gains realised in 2013/14 are also exempt.
He might be able to claim income tax relief for the loss on the shares if they are valueless. This loss would be after taking in to account the SEIS relief – therefore £12,500. The disposal of the bar shares would ordinarily trigger any gain held over gain but the special rules applicable for 13/14, are that other gains (on a bakery for Victor) of half of the SEIS subscription are exempt rather then held over, so there is no held over gain to crystallise.
Victor's pension arrangements, and those of his family, should be reviewed. A company pension contribution secures full CT relief and within limits is not taxed on Victor.
H. Bank Interest
Victor should consider using his ISA allowance each year so that interest is tax free.
I. Victor's mother
Victor's mother might not need to worry about the reduction of the exemption from CGT of the period immediately before the disposal of a main residence from 36 months to 18 months, as this does not apply to long-term care home residents.
She should consider estate planning to mitigate inheritance tax (IHT). The illustration below shows the potential exposure is material - the house may have to be sold to fund it:
Exemption (including that from deceased husband)
IHT payable at 40%
She may wish to consider making potentially exempt transfers – the full benefit of which would be obtained if she lives for seven years after making the gift. If she dies within seven years, but after three, taper relief reduces the IHT payable.
As her income exceeds her outgoings, she might be willing and able to take advantage of the exemption for gifts made out of surplus income, £3,000 annual exemption and £250 per recipient annual exemption. The latter two exemptions mean that irrespective of her surplus income she could give £3,250 to Victor and £250 each to the wife and children – totalling £4,000 each year. These gifts would be exempt rather than potentially exempt. If she died after 5 years, £20,000 would have been given away saving IHT of £8,000.
Another option would be for her to consider Enterprise Investment Scheme Investments which qualify for business property relief – effectively reducing the value of her estate subject to Inheritance tax once they have been owned for two years.
Many of these ideas are quite straightforward and will considerably reduce the tax payable without causing unwanted attention from the tax man! There are potentially huge savings in IHT.
This is not a definitive list or discussion of the issues arising from the scenario and the possible tax mitigation strategies. Specific advice should be obtained before taking action or refraining from taking action on any of the subjects covered above.
Victor Green is 56, married, and has two children at University. He owns and runs Highbrow Events Ltd in Farncombe. It has nine employees and turns over some £700,000, making about £120,000 profit after paying his £85,000 salary. He works partly from home. His wife helps him with the bookkeeping and business admin, but is unpaid. Their daughter built the company's website as part of her degree course and deals with the regular updates. Their son also helps out with some events.
Victor's old company car, his cherished and reliable 2004 Range Rover Vogue supercharged V8, was allocated to his wife early in October last year when the company purchased his new Tesla P85D for a shade over £80,000. He likes his gadgets and gets the latest mobile phone each year (iPhone 6s), reclaiming the cost of business calls from the company.
He often entertains potential new customers, but pays for this himself as he knows it's not tax deductable. He’s considering paying himself a £10,000 bonus to cover the last few months’ expenses.
Victor has £60,000 savings with his bank. Last year he subscribed £25,000 for a 25% shareholding in a friend's start-up business – a late night bar in town. Unfortunately this has had to close due to planning and other problems. The investment is lost and he’s worried about his credit rating.
Victor's mother moved into a care home two and a half years ago, but has only just finally sold the eight bedroom family home for just short of £2m, adding to her cash savings. Although her £3m cash deposits don’t earn much interest, she has a pension from her late husband (a Detective Inspector, Surrey Police), as well as her own pension from British American Tobacco where she had a successful career as Head of PR. These pensions comfortably cover the care home fees and her doctor reports she’s in better health now that she has cut back on cigars and is adding butter, not milk, to her tea.
Task 2 - Quiz (The correct answers are those highlighted)
Question 1: What % of a company car’s list price is taxed as a benefit if its CO2 emissions are 215 g/km?
Question 2: What is the current cash ISA, or NISA subscription limit?
Question 3: What is thestandard inheritance tax "nil rate band" - above which tax is charged at 40%?
Question 4: Entrepreneur’s Relief reduces CGT from 28% to 10% and is available in respect of the sale of shares in your “personal company”. A company can’t be your personal company if you don’t own at least:
- 5% voting rights
- 10% voting rights
- 25% voting rights
- >50% voting rights
How to make a difference in customer service
Business Club | 23rd January 2015
One fact from the book by BBC Hard talk journalist Jessica Williams ’50 facts that should change the world’ (2007) is: “If you stand at the junction of Oxford Street and Regent Street in central London there are 161 braches of Starbucks within a 5 mile radius.” And there are 86 within a 30 minutes walk – more than in Manhattan. In the UK we consume 1.2kg of coffee annually – considerably less than the 4.6 kg of our international peers, so there maybe plenty of scope for growth. One new store is planned in London every fortnight for a decade, as part of the plan for 40,000 stores globally (currently 15,000; McDonalds has 35,000 stores in 119 countries).
Of the typical £1.80 we pay for a cup of coffee, less than 2 pence goes to Ethiopian farmers for the beans and they remain in poverty, often forced to sell their crop at a reduced price before it is harvested – just to stay alive. Their plight and the actions of Starbucks who (according to Oxfam, acting through the US National Coffee Growers Association) blocked an Ethiopian government bid to trademark three of the most famous beans which would have increased the price received by the farmers, was highlighted in film Black Gold. The buying process was clearly at odds with the company’s stated goals - No.1 on the website is “We’re passionate about ethically sourcing the finest coffee beans, roasting them with great care, and improving the lives of the people who grow them.” Subsequently, Starbucks withdrew their opposition to the trade mark (or should that be a coffeeright!) and now buys more Ethiopian Coffee and provides micro finance to growers.
Statistics and a small group of people can change a global business. Surely those involved with smaller businesses can make a significant difference to customer service in their own operations?
True or false
Our experience is that most people agree with the ‘sentiment’ of the following statements but doubt the statistics. In fact they are all true.
- Price is not the main reason for customer churn; it is actually due to the overall poor quality of customer service. (Accenture global customer satisfaction report).
- 55% of customers would pay extra to guarantee a better service. (Defaqto research).
- A customer is four times more likely to defect to a competitor if the problem is service-related rather than price or product related. (Bain & Co.).
- The probability of selling to an existing customer is 60-70%. The probability of selling to a new prospect is 5-20%. (Marketing Metrics).
- It costs 6-7 times more to acquire a new customer than retain an existing one. (Bain & Co.).
- For every customer complaint, there are 26 unhappy customers who remain silent. (Lee Resources).
- 96% of unhappy customers don’t complain – however 91% of those will simply leave and never come back. (1Financial Training Resources).
- A 2% increase in customer retention has the same effect as decreasing costs by 10%. (Leading on the Edge of Chaos, Emmet & Mark Murphy).
- A dissatisfied customer will tell between 9-15 people about their experience. 13% tell more than 20. Happy customers tell 4-6 people. (White House office of Consumer Affairs).
We have all experienced disappointing customer service. One report was of being asked to respond to a professional adviser’s client satisfaction survey to give some honest constructive suggestions, and then getting a decidedly frosty reception from the adviser at the next meeting!
As business owners it can be a challenge to keep the elements detailed in the diagram below in balance. It’s relatively easy to manage one or two. For example, recruiting high calibre staff and paying them generously might result in happy customers and satisfied employees, but the business financial performance might suffer.
Practical tips to improve client service
- Acknowledge that service is much harder to ‘correct’ than product or price.
- Be clear about your core values and make sure these guide your daily actions.
- Communicate openly to establish needs and client / customer expectations from the outset. Respond promptly – even if only to agree when you will reply in full.
- Be clear about who your key customers are (commencement date, repeat businesses, etc) and maintain relationships with them on a systematic methodical basis. Include an ongoing feedback process.
- Consider different ‘service standards’ for your customer groupings.
- Train yourself and your people – including putting oneself in the customer’s position and anticipating their needs. Backed up with good procedures and resources.
- Make occasional ‘random acts of kindness’.
Be receptive to feedback and complaints – regarding them as an opportunity to make improvements. Obtaining feedback at the point of services can be very effective if those involved in the ‘blip’ are empowered to put it right and the customer’s concerns are addressed very quickly. It can help staff appreciate the customer’s perspective, they can see the issue and positive outcome of solving it, and avoid future problems. Far better than a later reprimand.
Delegating effectively – good practice guide
Business Club | 20th November 2014
When we're busy it can be difficult to make time to step back and look at what we ‘should’ be doing as opposed to getting on with what’s in front of us.
Delegating can help, but only if it’s done effectively. Otherwise, it can prove more time consuming than simply carrying out the task ourselves in the first instance.
At our meeting in November we shared ideas and experiences on how to delegate effectively – summarised in this good practice guide. As one delegate commented “don’t delegate a hospital pass!”. Another advocated delegating everything before going on holiday and re-inventing oneself after returning. Some delegates had reservations about delegating ‘relationships’ – which needs to be balanced with creating new relationships and stronger associations – perhaps another topic for discussion.
Delegation involves getting the right person to do the job at the right time. Remember the Eisenhower principal (see below): Important matters are never pressing and pressing matters are seldom important.
Up front effort is required to delegate effectively – but there is the potential for big rewards all round. Both parties can contribute to improving the ongoing process. It’s a vital skill for effective leadership and those with leadership aspirations.
Potential advantages and disadvantages
When done well it saves the delegator time, increasing their scope to undertake more challenging or rewarding activities in line with their career aspirations, whether inside the current organisation or not. It might make a business saleable without the owner.
It also motivates and develops the deputy, giving them the experience and confidence to take on more responsibility and earn promotion. It may capitalise on the knowledge of subordinates – resulting in a better job. Those at the coal face often know best who to do something.
It can create a rewarding working environment where peoples’ careers progress, and also reduce the organisation’s reliance on external new hires. How else do you train people? It’s the best tool in your locker for this.
Delegation of work to the lowest level that it can be carried out properly is very efficient and contributes to improved profitability.
Done badly it can cause confusion, frustration and demotivate, with the task not successfully completed.
In practice: When?
For each task, ask yourself:
- Must you do it personally (critical/unique skills)?
- Is it the best use of your time?
- What does it contribute to your own career goals?
Make sure you delegate early, when there is still sufficient time to delegate effectively.
In practice: Who?
- Does someone else have, or could they learn, the skills, knowledge and experience required? This applies even in small organisations.
- By delegating could you develop others so that they can take on similar tasks or the same task if it recurs – freeing up your time in the future?
- Is it an opportunity to develop someone else; in line with their career goals, working style (independent/team, etc) and workload?
- Is there sufficient time for training, questions, monitoring, and reworking if required?
- Can you manage the consequences if the work is not perfect?
- Sometimes it can be worth ‘delegating’ to someone outside your organisation.
Delegating: good practice
- Decide what to delegate and delegate it early.
- Include people in the delegation process – explain why were they chosen, what tasks they will undertake and when. Don’t duplicate, delegating the same task to more than one person.
- Delegate to the lowest possible organisational level – those closest to the work often have the best knowledge of the intimate details to get it done most efficiently. But they must be willing and able.
- Motivate and build commitment by discussing the benefits of success (money, promotion, recognition, gratitude, etc). And the ‘big picture’ benefits to the organisation.
- Try and delegate similar tasks to a particular person.
- Focus on the desired result not how the task should be tackled. Do not be prescriptive on ‘how to’.
- Delegate some responsibility but recognise you must retain ultimate accountability for major problems. The buck stops with you. Don’t abdicate responsibility.
- Delegate the authority for the means to achieve the goal.
- Identify constraints and boundaries such as lines of authority, responsibility and accountability. Is this temporary or permanent?
- Define your role and whether the person should:
- Wait to be told what to do
- Ask what to do. Has just a task or also some decision making power been delegated?
- Make a recommendation then act on it
- Act and immediately report results.
- Act and report periodically.
- Ensure the delegated task is SMART
- SPECIFIC: Written, positive and clear on the intended result
- MEASUREABLE: What is a success?
- Attainable / Achievable: realistic, with time for each step
- RELEVANT: aligned with goals
- TIME: Deadline, actual, recurring linked and ongoing. Agree a timeline for monitoring of progress.
- Delegate complete tasks not isolated subtasks whenever possible. For complicated task it can be sensible to confirm the goal and constraints etc in writing.
- Provide support, not just on any part of the task you have agreed to do yourself (which must be done properly and on time) but through ongoing communication; being available to answer questions and provide resources such as information, facilities or training.
- Maintain control of timelines & deadlines. Seek progress reports. Be clear that you should be informed of any hitches, agree checkpoints to review progress, make adjustments, allow and take time to review the work done.
- But do not interfere. Avoiding micro-managing is not the same as complete abdication of control.
- Resist upward delegation or handing back of incomplete tasks. If there is a problem, ask for recommendations, don’t simply provide an answer.
- Monitor results, give praise and credit if the project goes well and obtain feedback to improve the process next time. Technology can play an important part in monitoring progress.
Barriers to delegation:
- Is a subordinate willing and able – or would they be is you approached them correctly?
- Insufficient time to explain
- Not sure what needs doing
- Quicker if I do it
- Superior asked me
- Fear a superior result
- Loss of control
- No confidence in ability
- Subordinates may lack confidence but have plenty of ability – if encouraged and nurtured.
- Fear loss of authority or prestige
- Arrogant belief that an inferior result will ensue – often the outcome is superior.
- Coping with resistors
Six W rules of delegation:
- Why – benefits all round
- In what way – but not prescriptive
- with what
Key Client Programmes
Business Club | 22nd September 2014
A key client programme involves working out who the key clients/ customers are and then treating them differently from ‘the rest’. It’s not that’ the rest’ are going to get bad treatment, just that we’ll routinely go the extra mile for key clients.
The criteria for selecting which clients or customers are included are very flexible but usually include historic purchases, potential purchases (absolute value or current spend as a proportion of total spend in that area), profitability of their work, prestige / kudos, advocacy, fit to with plans in a niche or develop technical expertise & experience (interesting work?). It’s not about ‘big’ or ‘small’ clients.
Advantages and disadvantages
- Pay, and quicker
- More work, and bigger projects (cross selling), - more readily than new clients
- Refer others, of quality
- Improved profitability, premium rate / improved margins?
- Stronger relationships / increased loyalty / Retain clients
- A customer allocated an exclusive product line might contribute to its promotion
- Collaborative / ‘extended family’ approach brings ‘market intelligence’ and strategic opportunities
- Quicker growth, insight into which clients are likely to grow
- Better understanding and more focus can permit streamlined and focused processes
- Helps focus on value to clients, monitoring to manage cost and ensure in line with benefits
- Some clients will want to participate.
- Risk or alienating or neglecting ‘normal’
- Consider selection criteria very carefully (e.g. remember referrers).
- Delighting clients/ customers might create follow up assignments opportunities that the worker is not well placed to service. – conflict with today’s tasks
- Management time usage
- Potential to result in reduced margins
- Less simple work for junior staff?
- In some industries there may be regulatory reasons to provide a ‘uniform’ service
Ideas or tips for successful implementation
What going the extra mile entails?
- Leadership is crucial
- Clarity over what is driving it
- Recognise it’s not an objective but part of the strategy fundamental to the objectives. (What are they?)
- Find out what clients really want, treat them individually, doing what’s right for each. Avoid being too prescriptive
- Keep it simple – avoid excessive planning – focus on the meaningful chat with the client -potentially begun by the supplier ‘sharing insights’
- Internal ‘dragons den’ feedback reports can help ensure ‘action’. Monitor say quarterly, including introductions.
- They are evolving things requiring ongoing adjustments
- Make sure the cost to us is in line with the benefit / value to the client
- Company wide (but not all clients to participate)
- A client charter?
- Avoid thinking that just buying software is the same thing!
- Avoid conflicts of interest
- Ensure all aspects of the business are aligned to the programme so messages are valid – e.g. marketing.
Business Club | 30th July 2014
Feedback: Useful situations
A tested way to develop or appraise managers and leaders to improve capabilities and help employees realise their potential.
Can have a material impact on the business financial performance as engaged employees work harder, smarter and for longer. Consider feedback from Joiners, existing employees (annually?), pulse checks for selected groups at relevant times and leavers.
Customers / clients
To aid product and service development in line with market needs and requirements, and to measure performance against customer expectations. Customer feedback via social sites is now more powerful than ever (e.g. Trip adviser).
How it is perceived by the public.
Continually assessing the actions and reactions (including non verbal) of other participants., in sales and other meetings.
Role play assessment of real life situations.
Friends and family
In developing stronger personal relationships based on understanding and respect to overall longer term benefit.. Can be unsolicited. Also includes parents evenings.
To ensure members of a team are aware of each others abilities so that collectively they can play to individual strengths.
Feedback can bring about instant changes in systems or behaviour (often from those involved) or be invaluable in product improvements / enhancement.
After a pitch/proposal or project
To clarify the selection criteria on winning a sale and to uncover perceived advantages of the competition which may be countered in the future.
From external providers or suppliers or even the competition
Insights into your organisation compared with your competition.
Is feedback always a good idea?
Analysis of academic's experiments carried out between 1905 and 1992 revealed that in 38% of instances where feedback was obtained a decline in performance followed. This was irrespective of whether the feedback was positive or negative. Higgins regulatory focus theory followed: positive feedback improves performance in promotion focused situations (where people are doing things they desire or are working on a task which requires creativity). Negative feedback improves performance in prevention focused situations (where the task is being done out of obligation and requires vigilance).
In theory seeking feedback from customers /clients is worthwhile as it can create the opportunity to 'fix' the issue. Apple has found that if it's store managers call customers who have complained, those customers go on to spend more with them than the average customer.
Tips in seeking feedback
We've all heard the a variant of the phrase that a satisfied customer tells 3 friends whereas a dissatisfied one tells 3,000. certainly many people tend to focus on negative points when giving feedback and those involved need to be aware of this; it can be de-motivating for employees (especially those in promotion focused roles as above). Conversely, sometimes the process can make contributors realise how good or positive their experience of the product or service has been.
Care needs to be taken not to 'lead' too much in seeking feedback with open questions included. It is worth noting that a proportion is likely to be unfair or inaccurate - and that website feedback statistics are unlikely to take this into account.
Face to face feedback can be preferable to forms - and a more positive experience for those giving feedback. In a service provider / customer situation this can be a strategic discussion valuable to both parties, covering not just the quality of advice or products and the overall customer experience but also plans.
The frequency with which feedback is sought also needs care. Some upmarket hotels ask for it after every meal serving (to evaluate the staff on that shift and compare with others) but this isn't well received by guests seeking relaxation.
The process of 360° feedback involves getting feedback on your strengths and weaknesses ( or 'developmental needs' or 'opportunities') from your boss, those who report to you and you peers. Because you get feedback from everyone around you who knows you well you are hearing it from 360° around you. Done well, it can result in improvement in key areas that might have been limiting career development or causing conflict in a team. Done badly, it can create mistrust, anger and conflict - lowering overall morale.
It has become common place and has featured in episodes of The Office and Dilbert cartoons. Well done 360° feedback is good for individuals and teams and can accelerate the organisations growth. In theory the concept of getting feedback from all a round can apply to most feedback situations.
Implementation tips include:
- Make sure the boss is involved and beliefs it is worthwhile. A programme instigated and driven only by HR is unlikely to achieve good results.
- Ensure the questions or tools are quite specific and address the issue of 'so what?' in other words that the output can be acted upon. Simply logging participants personality profiles is unlikely to drive much change.
- Encourage constructive feedback and educate participants not to advance personal comments that they wouldn't want to receive - even if true!
- Make sure that action is taken in relation to the feedback. Otherwise there is unlikely to be any behavioural change and no buy in to future feedback projects.
- Follow up and monitoring of the actions to be taken as a result of the feedback is essential to effect lasting change. This might need to be done quarterly over two years, for example,
- Feedback must be kept confidential and used for the stated 'improvement goal' - not for other purposes such as performance appraisal. there can be instances when anonymous feedback is appropriate.
- The feedback will identify strengths and these need to be acknowledged and nurtured as well as uncovering and 'fixing' weaknesses.
One research project revealed the use of 360° feedback as follows:
46% - development: your management people compared to the skills and behaviours integral to your business strategy
22% - appraisal
20% - talent management: on joining, regularly during and on leaving employment
11% - embedding values
2% - other
Raising the game of your board, faster
Business Club | 27th June 2014
The June Meeting of the Godalming Business Breakfast hosted by Shipley’s considered the use of trusted outsiders to improve enterprise performance. This concentrated on Non Executive Directors but acknowledged that other trusted outsiders who are already privy to confidential information, such as Auditors, can make a major contribution too.
Many of the considerations identified apply equally to Boards of Not-for-Profit and community or social enterprise bodies as well as more mainstream commercial and governmental undertakings.
An Advisory Board can be a good way of corralling as allies those trusted “critical friends” that also add external credibility and whom you would be sorry to see on the headed paper of a competitor.
The day-to-day management team comprised of the CEO and the heads of department may include people who do not themselves work full-time and may hold similar roles in non-competing organisations. The benefits of this include their being technically / professionally up to date and securing a calibre of individual that would otherwise be un-affordably costly. Such arrangement can also provide some of the contributions of a good non-executive director in being somewhat more detached and objective and less beholden to the CEO. “They tend to see things afresh every time the enter the building”
The meeting touched on the ways in which boards as a whole seemed to be operating and agreed that most spent too little time looking forward and too much time reviewing the past. “History tells us that we learn nothing from history unless we work very hard at it with the future in mind”
Planning and time management
Business Club | 23rd May 2014
We all probably agree that planning to some extent is a good idea, whether for our life and career or simply to better carry out the functions of our jobs.
The benefits can include
- Increased ability to tackle more difficult tasks
- Less frantic and stressed
- Ability to take on management duties
- Fewer mistakes and better results at work and in private life
- Improved organisation of our own work
- Finishing tasks with less wasted time
- Better results
- Greater work satisfaction
- Higher motivation
- Less pressure to work and succeed
A planning process
Despite these advantages, many people fail to plan. Here is one process to help tackle this:
- Goals: How to plan your life and career. The big picture, not detailed tasks.
- Planning: How to prepare to carry out tasks. How will you spend time on what rewards most / achieve results in minimum time?
- Decision making: Energy, time and prospective tasks. How can you be effective - doing the right job right not just efficient doing any job right?
- Implementation: Taking charge of your daily activities. How can you maximise your output on your agenda? (Avoid interruptions / distractions)
- Control: Successful implemetation of your plan. How to monitor your progress and initiate corrections.
- Smarter working. How to deal with meetings, reading, visitors, emails, telephone calls and correspondence etc.
The stages are considered in more detail in our Planning and time management handout.
Goals and objectives that work
Business Club | 25th April 2014
Task one - Attributes of business objectives that work
Please discuss with your table colleagues aspects of an objective that make it work.
- Identify what you want to achieve
- Write down what you want to achieve
- Write it in the positive
- Make it specific
- WHY. WHY. WHY. What you need to achieve
- How will you know if you are there, or closer? What's success?
- How could someone else measure?
- Will someone else understand it?
- If objective and what you are going to do to achieve it are muddled up you probably won't be able to measure it.
Attainable / Achievable
- Realistic - not impossible!
- Plan the activity - how long will each step take?
Aligned or Results orientated (not realistic - see attainable)
- Organisation goals?
- Horizontally (avoid duplication)
- Deadline time frame.
- Actual, recurring, linked or ongoing (rarer).
It was noted that in some instances objectives imposed by management can restrict an organisations ability to evolve and survive.
Task two - Improved objectives (revised objectives 'RO' and measures 'M')
When the words in bold are included in an objectives they are rarely effective.
a. Liaise with sales force
Why? So know what's selling best, so can start making it, be able to meet orders within 2 days
RO: Make sure sales orders are met within two days of receipt
M: The time between receiving order and completing it.
b. Go on a presentation skills course
RO: Be able to plan a presentation by 31 October
M: You have planned presentations, less than one slide per minute in presentation, less than 50 words on each slide
c. Develop a relationship with ...
Why? So that our departments can start to work together effectively, so that we, the IT group, design software to meet their needs
RO: Make sure new software is designed to meet the needs of the sales department and installed by Sept 15th
M: The date on which the installation is completed.
d. Contribute more to team meetings
Why? Told to, so people know about my project, so they know how it links to their work, they are more effective and avoid duplication
RO: Ensure other team members have the information they need about project XX in order to work more effectively
M: Specific information given to other team members
e. Coach AJ
Why? To improve skills, help her achieve something, to make her more effective - if so how?
RO: Ensure AJ finishes project X by 5 June within budget and complying with quality standards.
M: When project is completed, spend vs. budget, quality measure vs. quality standard
f. Represent the manufacturing department on the new building committee
Why? Asked to send someone, ensure they know our needs, so we get facilities required.
RO: Ensure the facilities needed by our department are provided in the new building
M: Specific facilities identified in the plan are present in the new building when it is finished.
g. Read five journals each month
Why? Keep up to date, so I use most effective research techniques, so I can use latest.
RO: Identify technique updates in the field of X each month
M: Each update to a technique, or a new technique.
The flexible workforce
Business Club | 28th March 2014
Task 1 – flexible working - Scenario
Our delegates were asked to assume that they and their table colleagues ran a business and that a number of requests had been received from employees and subcontractors. Reactions to the requests were discussed and each table worked on questions they would like to raise with an employment lawyer or HR consultant. The requests are reproduced below together with initial comments from our HR consultant, Jane Eden.
Marilyn has worked for the company for 27 weeks. She works full time and has three children aged one, three and seven. She has asked whether she can move to four days per week.
Application for part-time working: as she has a minimum of 26 weeks’ continuous services, she can submit a flexible working application to move to 4 days per week. The application should be considered and either agreed, or refused if there is a good business reason (e.g. the workload is that for a full-time person and there is no-one to delegate the additional work to).
David has worked for the company for two years and is full time. He lives with his elderly mother who is partially blind. He has recently asked whether he can alter his normal working hours so that he can get his mother ready in the morning.
David is eligible to apply for flexible working as a live-in carer of an adult. His request would be for flexi-time, so he would remain on the same hours, but slightly out of the ‘core times’. Again it can be agreed or refused if there is a good business reason.
Alex has worked for the company for a year and works full time. He has no children, lives on his own and has asked if he can work from home one day a week.
Alex cannot currently apply for flexible working to work from home one day a week. However, the Government are bringing in legislation, which will allow all employees to apply for flexible working. This was originally from April this year which was postponed and the last we heard, it has now been moved to 30 June this year. Again, it can be agreed or refused if there is a good business reason.
This is going to be a fundamental change, remember to look at your HR policies/Staff Handbook and also assess how you are going to manage a potential increase in flexible working applications and how you are going to ensure you have a consistent approach. For people in exactly the same job role, it would be difficult to agree to it for one person and not the other if they both apply. The most popular application will probably be for working from home, so how will you manage this?
Emily will be a casual worker on the payroll. Philip will call her as and when he needs her and she will work for him if she is available.
Emily should be sent a ‘zero hour contract’. This means that there is no obligation on the employer to provide work and no obligation for her to accept it. This contract is not suitable for someone on regular hours. Emily will be entitled to pay, annual leave and possibly statutory sick pay.
Arthur will be on the payroll working full time until the project has ended.
Arthur should be sent a fixed-term contract. This means that he would be considered an employee until the agreed finish date. The finish date can be extended as required, but remember that after two years service, Philip would need to show there is a ‘fair’ reason for not renewing his contract, plus Arthur would be entitled to things such as redundancy pay. After four years' service, he would automatically become a permanent employee. Arthur will be entitled to exactly the same benefits as a permanent employee from the start date.
Edward will undertake specialist work as required and will invoice the company for his time.
Edward will be a freelancer/subcontractor and there should be a ‘contract for services’ in place. He will have no employment rights apart from being able to claim discrimination. The employer should ensure that Edward really should be treated as a self employed contractor as opposed to an employee, otherwise the employer could potentially be liable for the PAYE and National Insurance contributions which should have been deducted. He should be paid via an invoice and not through the payroll.
Summary and recommended approach
In general, the flexible workforce should be looked at in three ways:
- How you can use different working patterns to fulfil the work requirements, e.g. part-time workers, flexi-time, job-sharing, working from home, term-time working.
- Who has the right to request flexible working and what are the employee/employer obligations.
- Different contracts and entitlements.
The rules and potentially employees expectations are changing and employers need to be aware of the changes and to make sure there procedures comply with the new rules. Recommendations include:
- Ensure you understand employer/employee obligations in terms of eligibility and notifications to apply for flexible working. www.acas.org.uk.
- All flexible working arrangements will result in a change to the terms of the individual’s contract, so a confirmation letter for signing should be sent
- It is a good idea to set a trial period with a review date.
- There are further entitlements in relation to parents with disabled children.
- Ensure you also know about unpaid parental leave rights and notification periods (info as above).
- Don’t make the mistake of thinking that because no contract is in place, the person doesn’t have any rights. It is how that person is ‘treated’ (e.g. hours worked/pattern/whether or not they are on the payroll), that an employment tribunal would look at.
- Make sure your policies / Staff Handbooks are up to date and remember to change these to reflect the new flexible working legislation.
- Look at how you are going to manage the change internally, e.g. potential increase in admin / deadlines for notifications for the flexible working change.
- Remember that you need a good business reason to refuse a flexible working request. Not trusting the person to work from home is not necessarily a good reason!
- Remember that all your decisions need to be fair, so be careful not to set a precedent with the first few who apply.
Please contact our HR consultant, Jane Eden (Edenj@shipleys.com) if you would like further guidance on any of these issues.
Business Club | 27th March 2014
Task 1 - tax saving scenario.
Our delegates were asked to note points for further consideration in the scenario (reproduced below) Issues raised included:
A. Company car
Victor is paying personal tax of almost £12,000 per annum on the £26,250 benefit in kind
attributable to the Range Rover company car. Given that it's worth about £6,000 he might want to buy it from the company and run it himself, charging the company for his business travel (45p/25p per mile). Of course he would then be responsible for maintenance and repairs but given the vast ongoing tax cost with the current arrangements it is likely that he would be significantly better off.
B. Mobile telephone
Victor's company could provide him with a mobile phone and meet the cost of business and private call without a benefit in kind arising to him. At present the cost of the phone (c£720 every 18 months) and private calls (c£15 / month) are met by Victor out of his after tax income. Getting him the £660 annual expense costs the company (after corporation tax relief) about £1,600 per annum. If the company incurred and paid these expenses directly, the net of tax cost would be just over £500, saving almost £1,100 per annum.
C. Marginal tax rate and expenses
Victor's £80,000 salary, car benefit of £26,250 (£75,000 list price @35%) and bank interest (@say 1.5%) of £750 mean his income of £107,000 is in the 60% marginal rate band (due to the withdrawal of the personal allowance). The proposed £10k bonus re his expenses would be taxed at 60%, in addition to suffering employers (13.8%) and employees (2%) national insurance contributions (NIC).
The £10,000 bonus plus employers NIC would amounts to £11,380 (or c£9,100 after corporation tax relief) and put £3,800 in Victors pocket. If the company reimbursed these expenses Victor would have no personal tax liability and the cost to the company would simply be £3,800 (no corporation tax relief) - saving the business £5,300. This represents just two or three months expenses, so the annual saving could amount to almost £30,000 (note Victor's marginal tax rate at higher income levels would reduce to 50%). He may also consider what other expenses incurred at his home office should be reclaimed from the company.
D. Other family members
As Mrs Green and the son and daughter all work for the business they could be employed by it. As they have no other income this would take advantage of their personal allowances and basic rate bands, rather than the much higher marginal rate suffered by Victor. They may be some additional NI cost - but likely to be significantly less than the tax saving and this also builds up a NI contribution record for the other family members. If Mrs Green is paid an amount equal to the personal allowance this saves Victor tax of up to est. £5,664 each year.
E. Profit extraction
Victor shoud review the mix of his salary and dividends, as the latter are likely to be more tax efficient. Dividends are not subject to NI.
Above is a comparison of salary and dividends. A company pension contribution secures full CT relief and is not taxable on Victor.
F. The bar
Consideration should be given to whether the investment in the bar could be structured in
accordance with the rules for Seed Enterprise Investment relief (SEIS). This potentially gives Victor a £12,500 (50%) income tax credit, and exempts from CGT of any gain on sale realised after at least three years. Furthermore, if the investment is made before 5 April 2014 it would exempt from CGT gains up to £12,500 (50% of the investment) arising in 2013/14. This is potentially relevant as Victor has a gain relating to the sale of his interest in the bakers.
G. The bakers
Victor stands to make a £50,000 gain on the sale of his half of the bakers. After deducting the annual capital gains tax exemption of £10,900, his chargeable gain of £39,100 will be taxed at 28%, so the tax payable would be almost £11,000.
However, if the bar investment is made in 2013/14, £12,500 of the gain on the bakers will be exempt, saving tax of £3,500 and reducing the bill to about £7,500.
Alternatively, if Victor defers selling his interest in the bakers until July when he will have held it for a year, then the deposal may qualify for Entrepreneurs relief which would mean the gain is taxed at 10%, thus the tax payable would be £3,910.
If Mrs Green had a small stake in the bakers then her gain might have been covered by her own annual CGT exemption.
Victor's pension arrangements should be reviewed.
I. Bank Interest
Victor should consider using his ISA allowance each year so that interest is tax free.
J. Victor's mother
Victor's mother should consider estate planning to mitigate inheritance tax (IHT). The illustration below shows the potential exposure is material - the house may have to be sold to fund it.
As her income exceeds her outgoings, she might be willing and able to take advantage of the
exemption for gifts made out of surplus income. If she lets out the house the after tax income could be given away. If the property is still held on death it will be uplifted tax free to market value at that time for CGT purposes - and this value included in the IHT estate.
She may wish to consider giving away the property now. Such a IHT potentially exempt transfer becomes exempt from IHT if she survives at least 7 years. In the event of death within seven years (say after five years - when the house might be worth £2.5m) taper relief might apply as follows:
The IHT liability taper relief starts to apply three years after the gift and her beneficiaries might want to think about funding a reducing term assurance policy to cover any tax that might arise.
Alternatively she may wish to consider giving away part of her cash savings. Use could also be made of the £3,000 annual gifts exemption and £250 per recipient annual exemption. By giving £3,250 to Victor and £250 each to the wife and children would amount to £4,000 each year. These gifts would be exempt and not treated as potentially exempt. If death occurred after 5 years £20,000 would have been given away saving IHT of £8,000.
Many of these ideas are quite straightforward and will considerably reduce the tax payable without causing unwanted attention from the tax man! There are potentially huge savings in IHT - although of course his mother will need to decide what she wants to do. This is not a definitive list or discussion of the issues arising from the scenario and available tax
mitigation strategies. Specific advice should be obtained before taking action or refraining from taking action on any of the subjects covered above.
Victor Green is 55 and married with two children at University. He owns and works for Highbrow Events Ltd in Farncombe, It has eight employees and turns over some £600k. Profits are about £100,000 after paying his £80,000 salary. He works partly from home. Now the children are older his wife helps him with the bookkeeping and business admin, but isn't employed by the company. Their daughter who is doing a graphic design degree built the company's website as part of her course and their son also works for the business during the holidays.
Victor's company car is an elderly 2004 Range Rover Vogue supercharged V8, which he still loves and is reluctant to update because it has been so reliable. He likes his gadgets and always has the latest mobile phone, reclaiming the cost of business calls from the company.
He is always entertaining potential new customers but pays for this himself as he knows it's not tax deductable. He is considering paying himself a £10,000 bonus to cover the last few months costs.
Victor has £50,000 savings with his Bank. He's favourably considering investing £25,000 for a 25% stake in a friend's start up late night bar in town - as last July he put £10,000 into a successful speciality bakers, and his business partner Bunny wants to buy out his half for £60,000.
Victor's mother has just moved from the 8 bedroom family home into a nursing home, She has cash savings and a pension from Victor's late father, who was a Detective Inspector with Surrey Police, as well as her own pension from British American Tobacco where she had a successful career as head of PR. Her pensions comfortably cover the nursing home fees and her doctor reports that she should live for at least another 5 years now she has finally agreed to substantially cut back on cigars.
Gift Aid Declaration Forms
Business Club | 18th March 2014
Personal Affairs Checklist
Business Club | 18th March 2014
Business Club | 18th March 2014
Making good decisions - how does your brain work?
Business Club | 18th March 2014
Challenges and quiz questions.
Each table discussed one of the following statements, decided whether they agreed or disagreed and provided examples for and against. The research based results are summarised below. Our second task was to individually complete four quiz questions. The answers were intended to demonstrate some of the behaviours highlighted in the discussions about the statements. Our groups answers are shown (X%).
A. We surround ourselves with information that matches our beliefs
True. This is known as confirmation bias. Research shows that we spend 39% more time reading an essay aligned with our opinions than one that doesn't reflect our views or beliefs. We are more likely to be friends with someone if we agree with their beliefs. It also means that subconsciously we may also tend to ignore or dismiss what conflicts with our views. We seek out what we already believe and then think there's an actual increase in the frequency of these occurrences.
In a research project carried out at the University of Minnesota in 1979, a story about a woman who acted introverted in some ways and extroverted in others was given to a group of librarians and a group of estate agents. On later questioning, the librarian group recalled her introverted behaviour and thought she would make a good librarian, whilst the estate agent group focused on her extroverted behaviour and though she would make a good agent but a poor librarian!
B. We are good at distinguishing between selection factors and results.
False. Professional swimmers don't have ideal bodies as a result of their training. It's the other way round - they are good swimmers because of their physique. Their body attributes are a factor for selection not a result of their activities. Is the tuition at schools which get good results really excellent or do they get the best students? Many adverts rely on our inability to accurately make this distinction - we are drawn in by adverts which suggest we can improve our skills in areas where are unlikely to ever excel.
C. We are not worried by things (time, money etc) we have already lost
False. Through evolution we are wired to feel loss more strongly than gain. We worry about the sunk cost and as a result sometimes ignore logic and facts - instead making an irrational emotion based decision. The key is to realise that the investment has already been made and the decision now is which option promises the greatest return in the future.
In Question 1 below - the total spend is £1,500 and logically one should choose the 'even better' trip to Italy -whatever 'even better' means to you. Many people are reluctant to 'write off' the £1,000 or will be distracted and confused by the choice between the two countries.
Question 1: Imagine you have paid £1000 for a good ski trip to France but soon after found an even better trip to Italy and paid £500 for that one as well. It turns out that the two trips clash, and you can't go on both, and can't refund or resell either ticket. Do you chose France or Italy?
A: France 32%
B: Italy 68%
D. We are good at predicting odds
False. We place too much emphasis on past events and confuse our memory with how things actually are, leading us to think that past events will have an effect on future outcomes. In the example of flipping a coin (see question 2 below)- past results have no influence on future results. Gamblers often suffer from this. Our GBC members did very well in the related quiz question - but we all need to guard against he tendency to place undue emphasis on our experiences. Drink drivers who get away with it are often tempted to repeatedly drink drive because no adverse consequences have so far arisen - despite the obvious risks.
Question 2: Imagine you are playing heads and tails with a friend, best of 10. So far, heads has won five times and tails four. What is the most likely result from the final flip?
C: Both equally likely 100%
E. We rationalise purchases we don't want
Many members thought we should have asked about 'needs' not 'wants'. Arguably we buy something because we 'want' to - whether we 'need' it or not. Things we need are much easier to justify, so a strong internal conflict is more likely with things we don't need. Our buying decisions are often based on emotions - such as the influence of 'brand'. This sets up an internal conflict which psychologists call cognitive dissonance, often because our actions don't match our beliefs. As the purchase has already been made we subsequently try to justify it.
F. We make decisions based on comparisons ('the anchoring effect')
True. That's what the research shows. Sometimes a seemingly useless option can affect our decisions.
Behavioural economist Dain Ariely gave several examples in one of his TED talks, one of which was based on a real advert for subscriptions to The Economist magazine. We attempted to recreate this experiment, by giving some delegates only two options whilst others had three.
Question 3: Which of the following subscriptions to The Economist would you choose?
A: Economist.com - $59.00. One year web subscription including online access to all The Economist articles since 1997 - 53%
B: Print subscription $125. One year subscription to The Economist (print edition)
C: Print & web subscription $125 47%. One year subscription to The Economist (print edition) and online access to all The Economist articles since 1997 - 47%
In his research, when presented with all three options 84% choose the combo deal, 16% choose the cheaper web only option and nobody went for the useless print only option. Useless of course, because the print and on-line option is the same price.
A: Economist.com - $59.00. One year web subscription including online access to all The Economist articles since 1997 - 50%
B: Print & web subscription $125 47%. One year subscription to The Economist (print edition) and online access to all The Economist articles since 1997 - 50%
When he removed the print only option, the majority chose the cheaper web only option. So the inclusion of the print only option made the combination option seem a much better deal.
In our test, when offered all three options our group was equally split between online and print and online. Including the third option altered the results but not as materially as Ariely found.
In a similar experiment two types of chocolates were sold in a kiosk, standard and luxury. The luxury were priced well below their normal selling price, so the majority of people choose those. However, when both prices were reduced by the price of the standard chocolates - so they were free and the luxury's represented even better value, almost everybody choose the standard chocolates.
The standard chocolates free of charge represented a no risk option. We are constantly trying to avoid giving up more than we can spare - but our ability to balance between cost and reward is often skewed and unduly influenced by a desire to avoid risks.
G. We believe facts more than our memories
False. We favour our experiences more than facts, and our access to immediately available examples is key. For example if given a page of text and asked whether it contains more words 'ending in ING' or more words 'where the second to last letter is N', most people will choose 'ING' ignoring the fact that these words have N as the second to last letter! Statistically, there will be at least as many words with N as the second to last letter and probably more. But because they are harder to recall - our brains tell us that ING is more prevalent.
H. We pay more attention to stereotypes than we think
True. Lots of 'mind' related mistakes demonstrate our ability to easily ignore the facts. As our quiz question, borrowed from research conducted by D Kahneman and A Tversky, demonstrated.
Question 4: Linda is 31 years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also partipated in anti-nuclear demonstrations. Which alternative is more probable?
A: Linda is a bank clerk - 38%
B: Linda is a bank clerk and is active in the feminist movement - 62%
If B is true then A MUST also be true. A is therefore more likely. For those who prefer to think in terms of venn diagrams, B is a subset of A.
We really hope that you enjoyed our session and hope that being more aware of the pitfalls we often fall into when making decisions can help us to recognise them and perhaps aid future decisions.
Our session was inspired by Belle Beth Cooper's Buffer post dated 30 September 2013.
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Your Personal Brand
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Employees as shareholders
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Regulation & red tape
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Business Club | 18th March 2014
Attitudes to tax planning
Business Club | 18th March 2014
Business Club | 18th March 2014
Business Club | 18th March 2014
Business Club | 18th March 2014
Valuing a business
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Incorporation of a UK Company with Guarantee
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Incorporation of a UK Company PLC
Business Club | 5th March 2014
Incorporation of a UK Company
Business Club | 5th March 2014