Gordon Woolf's Blog

The need to make a profit

The radio caller was critical of banks, which is not unusual, but she put it in a somewhat odd way: 'I have to pay them interest, but what do they actually DO (for me?)'.

This may be partly the reason for the current Occupy movements around the world. To some youngsters it may just seem that if their parents run out of money, they just have to go to "the hole in the wall', but to those parents does it also seem that if they can buy computers, washing machines, furniture and so much more on "48 months interest free", why should the banks charge interest. After all they are only giving you money for a while, not goods permanently.

I know that doesn't make sense, but it kinda sounds logical.

The reason for the demonstrations that I have sympathy with is that it is no longer true that the rich are getting richer and the poor are getting poorer -- it is, some people have pointed out with figures and graphs, that the super-rich are getting richer, and that the rich and the poor are getting poorer.

I could claim that some of my best friends are millionaires, which is not quite true but I have known a couple well enough to visit their homes and have them visit mine. I don't envy them. Sure they make more money than I ever had but they do have to work unusual and long hours and the stress level is more than I would want, even though as a newspaper editor I once flourished on stressful work.

But we now have company directors who get pay increases by the millions and yet manage to do similar work for several companies at the same time. If their individual jobs were at the stress level of "my" millionaires, they'd have been dead long ago.

That's what I mean by things getting less fair. And therefore in general terms the Occupy movement has my moral support.

I'm not particularly blaming the chain store owner with his 48-months interest free and similar offers. The one I have in mind has said that people are stupid to accept some of the offers made in his stores as they don't suit everyone.

It is necessary for businesses to make a profit in order to reinvest but there is a big difference between making a fair profit and making the most that you can. Is the first aim of company directors to make the most profit for their shareholders or a profit which will ensure that the company continues to be viable into the future? Customers are important too, with the rest of the community needing at least a little consideration occasionally.

I don't think the unfairness claim can be made against more than a small number of the people who run companies -- it just seems like that sometimes.

Make sure you get paid - redux

Getting paid is the final stage of any kind of freelance work -- or of running a small business of any kind -- but seems to be a particular problem in publishing.

I have already written on the subject in a blog item you'll find here, but it is well worth revisitng

There are several necessary steps, and many of those go back to the first ones when you are in the first stage of getting and accepting a job.

Such steps include checking the details of who you will be working for. Do you really know who they are? Try a search on the Internet: do they have a web site, does it give their actual address and is there information on how long they have been in business?

But I'm getting carried away giving my own interpretation of what to do when there is a good guide by a longtime copyeditor, Katharine O'Moore-Klopf, who has been successfully overcoming the problem of "How to avoid getting stiffed by clients" for many years.

Read it before you take on your next client.

Make sure you get paid on time

Being successful in a small business is not just reliant on making a profit on whatever you sell, whether it is goods or services. It relies also, and perhaps more importantly on getting paid for those goods or services.

I was surprised yet again this month to come across a small business owner, in this case a freelance designer, who had not thought to set out clearly just when he expected to get paid and ensuring that was understood by his clients.

He wondered whether he should offer a discount for payment at 10 days or 30 days. That, I suggested, would just mean he would be giving a discount to his current prompt payers and encouraging others by suggesting he was prepared to finance their debts to the extent of 30 days which could be attractive compared to bank overdraft costs. He also needed to make sure that he got invoices out immediately a job was done, and certainly not wait until the end of the month (and sometimes into the next month) as he had been doing.

Long ago I established a simple system with my clients: no job would be started until the previous one had been paid for. I did have a couple of exceptions for weekly jobs but on those there was a date for payment each month which I had got from the client and no future job would be started if that date went past without payment.

When you have your own debts it may seem hard to seemingly pass up the chance of more work, but if you are offering fair value in what you do you will find that clients will keep to agreed terms when it is in their interest. Those who do not may not be worth working for; it is no good doing work for which you will never be paid, or paid so slowly that extra costs in chasing payment eat away at all the profit and do not return your own expenses in doing the job.

Part payment should be normal in advance on first orders. In my experience as a publisher, most book printers now work on half payment in advance and the rest before the finished job is despatched. One large printer told me recently that is what saved them in the recent global difficulties.

Faced with such payment terms from printers I can understand that some publishers will be trying to delay payments to other suppliers ... will you be one of those?

Do we need bread for the bread?

The sandwich shop owner appeared on TV screens around the world. His shop was on Wall Sreet and he was being asked how the credit squeeze affected him. It was, he said, making it difficult. He was having problems borrowing the funds to pay wages, and to buy stock.

Hey! Time for a reality check: if a sandwich store owner has to go into debt to pay wages and buy his fillings, then we are all facing disaster. This is the true cash business. Buy bread and butter in the morning, sell it at lunchtime and pocket the profits in an afternoon. The founder of the Subway empire, so legend states, needed only a thousand from a friend to get not only the stock but the equipment he needed.

Of course we now have a new definition for “market trader”. It means the denizens of Wall Street and their ilk around the world who believe in derivatives and that you can sell things before buying them. The true market trader is of the kind who had a stall in London's Petticoat Lane or on Portobello Road; he or she had a simple business plan: buy, markup, sell, buy again... There was generally no place in the expenses which had to be covered by the markup for loans to run the business.

Loans exist to provide capital. Sometimes that capital is of a short term nature. I recall from my own past of going to see the bank manager because we had planned a trade directory and the idea had sold so well that we did not have enough money to print it; the ads we had sold more than covered the print cost and we had an advance order from a government department for a couple of hundred copies, but none of that money would come in for at least two months and the print bill had to be paid on delivery. We'd actually done quite well in getting prepaid ads but the print bill for a book a lot larger than we had envisaged was therefore way above what we had budgeted.

The manager, in a major bank in London's Fleet Street, heard our tale, looked at our figures and allowed us the few hundred pounds we needed. He chatted about our plans for a magazine in the same field as the directory and then told us he had to leave for a meeting with another client who had a similar problem. We might even read about it next day.

We did. Rupert Murdoch bought the News of the World.

Our tale is a good example of what banks and other means of getting credit are for. They are not to provide daily running expenses. Unfortunately many people seem to have forgotten that.

Afterthought: We wonder if the conversation between journalist and Wall Street sandwich shop owner really went like this:

J: You must be hit by this credit crisis...

SSO: Well, maybe a little. It'll cut our sales if the businesses upstairs cut their staff.

J: How about I bring our cameras in and we'll do a piece on how this affects the little guy. You'll get your face on screen and everyone around here will recognise your shop in the background.

SSO: That's be good. Yes, I can say I need credit... I've got wages and I have to buy the bread. That's it, I need bread for the bread.

J: We won't go overboard! But the news director told me not to come back without some man-in-the-street footage.