Murray Associates Accountants Limited: Queen of profit, Gloria Murray.

Murray Associates

 

Queen of profit

Q: I had a look at your website and you have a great title. ‘Queen of Profit’. I run a business from home, in e-commerce, I haven’t put my prices up in 2 years. How often should you look at your pricing structure?

Thank you! I’ve grown attached to my ‘title’ as I suppose it sums up what I do. Pricing has the ability to absolutely transform your profit and therefore your business and personal life in turn. If your turnover is say £50,000, an increase in your prices of 10% will give you an extra £5,000 in profit with no increase in overheads.
It’s a great idea to look at your prices at least annually, but I would suggest even better, every 6 months. It may be you do a review and do nothing. Or you may notice your supplier has put the price of a key product up and you need to do something about this by amending your prices. It’s a key part of running your business.

Prices rise all the time and if you don’t increase your prices then inflation erodes your profit. Currently the retail price index is around 2.5%, so in 2 years you could have lost 5% of your turnover in profitability. I’m sure you’ve noticed prices going up! Keep an eye on your gross profit margin, if this is dropping then it could be caused by your suppliers putting their prices up.

Getting your price right also means you have the ability to provide an even better quality service to your customers – not all your customers are price sensitive. E-commerce makes it easy for customers to compare prices (if you don’t sell something unique), but there are lots of examples out there of businesses who sell products via the web who don’t compete on price. They do this by being quirky, giving fantastic customer service and offering guarantees. They build stories around their products and engage their customers through this.

So look at what value you can bring to your customers over and above what your competition is doing and how you can differentiate yourself. People are willing to pay more when they perceive they’re getting more, so the question to ask yourself is “what else can I give my customers, that they will value?”

I’ve just finished writing my latest book on Pricing. If you’d like a copy drop me an email; info@murrayassoc.co.uk and I’ll send you a copy once it’s been published.

Q: My business partner is also my partner and we are going our separate ways. I would like to keep the business and buy his shares. How would I gain a true value of how much his shares would be worth? Would I go to an independent accountant from our own?

You haven’t told me what your business is so I can’t give you any specifics on how your business might be valued. But it is best to get a valuation report as your partner may have capital gains tax to pay on his share once you pay him.

If the split is amicable then I don’t see any reason not to use your accountant unless they lack experience in doing valuations or your business is very unusual. However you do need to ensure your partner is comfortable with this. I have seen business partnerships break up many times and the biggest area of conflict comes down to how much the business is worth. I was involved with one last year and one partner insisted on getting another valuation as he was convinced the business was worth more than my valuation. However the independent accountant came back with the same valuation. It did mean, however, that both partners accepted the valuation and the partnership split with one partner carrying on the business.

I would suggest, as you’re a limited company, you ensure you know all the debts the company has. Once you buy your partner’s shares it’s too late to do anything if you find out he may have run up debts in the company’s name. It wouldn’t do any harm to get some legal advice and draw up an agreement. That way you both know exactly where you stand.

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