Top Tips to Save Money Part 2: Measure the Performance of Your Advisors
In any business, you will sooner or later need some help specialist help from advisors. No one can be a specialist in everything, even you! Of course, they are not going to give you their services for free so before you appoint and start paying someone, you should know and be clear what services are you are looking for and what are your expectations from these paid advisors. 3 key questions to ask are:
Why do you need an advisor?
Firstly, there are some things that need specialist and technical input such as preparation of accounts. Its also a regulatory requirement for businesses to produce accounts, as well as submit VAT returns (if you are VAT registered). And of course, you can do some of these tasks yourself if you feel confident and that they won't take too much time.
However, you might need to consult specialists to conduct your business, e.g. legal advice if you are setting up a company or forming a shareholding agreement. You might also need help from advisors who have specific skills to help you grow your business - e.g. website specialists, marketing experts and business coaches or mentors.
Once you've established that there is a definite need for advisors, then the next question to ask is:
What are your needs from hiring advisors?
The next step, before hiring an advisor is to understand exactly what you want them to do. Write down, even if its just a few bullet points, a list of your requirements. I'm a firm believer in writing things down, rather than keeping the list in your head. It will also be helpful to your prospective advisors if you are able to be clear as to what you want them to do and also helps to minimise risks of any uncertainties and confusion. Make sure the list is simple and clear such that you can discuss each point with each shortlisted advisor and that they can tick off each box.
How you will know if they have done a good job?
Having selected your advisors, you need to put something in place to ensure you are getting value from money from their services and that they are doing what they agreed to do. One way would be to make a list for yourself which states what will make you happy to pay them each month.
Why is this so important? Well, quite simply you are going to spend, probably thousands of pounds each month on these advisors, possibly for several years. Therefore, you should know what you are getting for your money and you should be confident that these advisors are delivering what you asked, not only on day one but in month 2, month 22 etc. To help ensure you are happy with their service, you need to measure their performance. Admittedly, this may not always be easy to do. For example, how can you measure the effectiveness of your accountants?
Well, in part, this goes back to listing what it is that you are seeking from your advisors. Using the example of accountants, did you choose them because they were the lowest cost or because they offered specific services which were of value to you; e.g their specialist advice to small and new businesses? If it’s the former, then it's likely you are going to receive a basic service and you will have to pay for any additional accounting or business advice you require. However, if the key criteria for selection related to receiving regular specialist advice relating to your business, then you should be able to assess whether you have received such advice as part of your contract with them.
This is why it’s so important to think carefully and write down all your requirements before deciding on which specialists to hire. Not only will this list help you evaluate their merits during the selection process; the list will also be useful before you sign any terms of engagement with the advisors.
Typically, and especially with professional firms such as accountants or lawyers, they will send you their terms and conditions known as their “terms of engagement” which you will be required to sign and it is deemed to be a legally binding document before they commence work. In this document, they will state what they require from you in order for them to complete their work. It will state what they propose to do to fulfil their obligations to you. The document will also state their rates when they need to be paid and any penalties for non or late payment.
If you are not used to dealing with such paperwork, seeing such a contract is daunting and you will be tempted to blur over the multiple conditions and sub-clauses listed in the contract. But that would be a big mistake. When you think you have found the right advisor, you are really pleased and so are the advisors who’ve been selected by you. Smiles all round! Any thought of future disagreement probably never crosses your mind.
However, what if after a few months there is an issue which you are unhappy about? Or they are not performing effectively or doing what you were led to believe or wanted? What do you do? Sack them? Not pay them? If you haven’t made a list of what you wanted them to do and relied on verbal discussions, this is a recipe for confusion, misunderstanding and worst of all – non-performance.
Above all, if you then discover, after being told or from a much closer and subsequent review of the terms of engagement that they are actually doing what they said they would do in their terms of engagement – but it is the terms of engagement that are wrong from your perspective – legally you have nowhere to go as you have signed the terms of engagement and even if for some strange reason you haven’t signed them; by virtue of them performing the same deeds as listed in the terms of engagement, they are deemed to have fulfilled the terms of the contract so you will still have to pay!
Hence, it is vital for you to go through a process of taking time to think through what you want from each advisor and list these down as the minimum levels of performance. It will help you to ensure you pick the most effective advisors for you and also the list ensures there is no uncertainty or confusion between you and the advisors. You can review the terms of engagement and seek clarification and insert amendments in the terms of engagement.
In the long run, you will save a lot of money, time and energy from taking a bit of time to think through what you want and how you will ensure you get value for money from all your advisors.
This chapter is particularly pertinent to me – as I was too laid back in my selection and decision making for advisors/specialists. Before I started my furniture business, I realised I needed specific help from:
Warehousing and logistics companies
I thought that if I browsed the internet, reviewed the web sites of each company, made a shortlist of a couple of companies from each sector (accountants, PR etc) and made my decision based on my feelings about each company after meeting them, I have done a good and thorough job in selecting the best advisors for me. I was very very wrong!! The lessons I learned cost me a great deal of time and money! SO please, take note!
For example, regarding the selection of accountants – I wanted a personal touch and wanted the firm I chose to give, ongoing business advice. So, having trawled through web sites of various companies, I shortlisted two accounting firms and met both before making my decision. At the meeting, I thought I had made it clear what services I was looking for – although I did not make a formal list of my requirements!
It wasn’t too long after the selection of the accountants that I realised that there was a difference in what the accountants were doing and what I expected. I did not see the Partner of the firm as I expected and wanted for business advice. And when I asked about his absence, I was told that if I wanted to see him for advice this was going to be at a cost at his normal charge-out rates which were at a few hundred pounds per hour! You can imagine how I felt at hearing that!
That was not the only unexpected shock I received from them! This came when I received their bill for preparing the first year set of accounts for my business. The bill was considerably higher than I had agreed; in fact, it was at least two thousand pounds higher!! When I quizzed them about this they said that they had to do a lot more work to prepare the accounts than they expected. However, they never contacted me to alert me they would be charging me more – instead they just charged me more!
Because I had worked in the accountancy industry before, I was very well aware that they could not charge extra monies for work without first informing me of their intention. This is a fundamental principle of doing business and also basic professionalism. I informed them of this and they soon realised that they could not charge me the additional monies as they had not provided any written instruction to me to ask my permission before they carried out the extra hours.
The constant wrangling with them over fees left a very bitter taste in my mouth – but it was also very distracting. I did not want to spend hours dealing with this issue – how was this helping me to grow my business? It wasn’t! It was just energy-sapping.
So inevitably, I decided to dispense with their services – and learned several important lessons:
Don’t place too much emphasis on a well-crafted web site – looks can be deceiving. Whilst an attractive looking website can be very appealing in the first instance, do not be too hasty to judge the rest of the company merely on the basis of their slick website. It is far more important to ask probing questions of the management team of the company bidding for your business.
Be much more thorough and specific in outlining your requirements and making sure these are documented in the Terms of Engagement. This also helps to eliminate any misunderstandings and grey areas – if it’s in print then it's in black and white – simple!
Make sure you read the Terms of Engagement letter to ensure it reflects what you have agreed and make sure you are aware of any payment penalties if you delay payment.
I made reference to the importance of planning in one of my earlier Blog posts "Why it pays to plan. I also alluded to the need for attention to detail in one of my first blogs, "Read the small print before you sign any agreement." Using the techniques I have mentioned in these blogs will save you a lot of stress, money and time; ensuring you find the best advisors who can make your business grow!
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