Top tips for improving profit
The fundamentals of improving business profitability comes down to five key factors:
- Reducing costs
- Increasing turnover
- Improving efficiency
- Increasing productivity
- Innovation and development.
In light of the current crisis, it is worth considering some top tips for improving profitability.
Carefully managing and reducing your input costs plays a key role in improving profitability, but it must be balanced with the need to deliver a service or product of a quality high enough to maintain your customers.
No matter how well run a business is, there will always be a degree of wastage or a way to reduce costs. Businesses should look at their key cost areas, which will typically include:
- Energy and utilities
To get an idea of the actual cost of each of these areas, businesses may wish to employ activity-based costing.
This method shows you how much it costs you to carry out a specific business function by attributing proportions of all your costs.
While this approach may be more complex and take longer, it will often show up potential cost efficiencies that other methods ignore.
This will also give a clear indication of the money spent on delivering a service or goods, which can be extremely beneficial to pricing strategies.
Review and improve
When was the last time you truly reviewed what your business offers, who buys your service and products and whether your pricing is competitive?
As a business owner, it is sometimes easy to lose track of these factors, which is why it is worth reviewing your current offering.
A good starting point in this process is to review your existing customers. It is worth identifying who your “best” customers are. These are your most reliable customers, who drive profits, not those who lead you to incur costs or affect cash flow.
Focus on their needs and how you can make improvements to increase sales to them. This may mean:
At the same time, it is worth reviewing your pricing strategies to make sure your products are competitive and not under–priced.
A key part of lowering costs is buyingmore effectively. Businesses should regularly review supplier relationships to see if they can secure their necessary resources at a lower cost.
To improve the review process, it is worth identifying the key areas of expenditure to show where the business spends its most money.
This will show where the most benefit may come from reducing costs. You can then begin to shop around to see if you can reduce the cost of this expenditure.
When you find a better deal, speak with existing suppliers to see if they can match it or improve upon it. Remember, you are a valued customer and a known entity.
If you cannot strike a better deal then don’t be afraid to switch to other suppliers, but don’t burn any bridges along the way.
Expand your market
It can be stressful and scary moving into a new market, but it can completely transform the outcomes for a business if it is conducted properly.
Going into business is never without risk and the same can be said for entering a new marketplace. Businesses will have to consider the costs and ensure that they do not lose focus on the existing aspects of their operations.
The first and most important step in diversifying is research. Businesses need to understand the costs involved, their potential market and prospects for profits. Take the time you need to develop a plan and make sure you have the information to make the right decisions.
Once you have a greater appreciation of the market you intend to enter you can tailor your product or service to fulfil its needs, this could include:
- Filling a niche
- Offering a lower-cost alternative
- Providing a higher quality service/product
- Reviving older ideas to reflect a change in the market
- Offering efficiencies and innovation.
If you are concerned about the risk of doing this alone it may be possible to form partnerships or joint ventures that provide greater security within a new or expanded market.
The productivity challenge
One of the more difficult elements of profit improvement is likely to be productivity. Most businesses appear to be working flat out at all times, so where can improvements be achieved?
Before even attempting to improve efficiency, it is important to get a baseline to benchmark changes against.
Businesses must measure their operational efficiency on an ongoing basis by putting systems and processes in place that allow key metrics to be recorded and analysed.
This could, for example, include how many work hours it takes to perform a certain task or manufacture a certain product. This will allow you to review whether an improvement you make increases or reduces the time taken.
Once you have an idea of how your business is performing you can then look to make changes, such as incentivising staff through bonuses or investing in automation to speed up the production process and reduce man-hours.
No single solution
Each of these tips on their own is useful, however, when combined and developed into a more detailed profit improvement strategy it can have a real impact on the survival and success of a business.
Putting together this information and developing a plan is no simple or quick task and for a busy business owner, it may mean more work and stress. That is why it is worth seeking out professional help to drive home profit improvement and monitor the success you achieve.
- Requests for exemption from publication of furlough claims must be submitted by Monday 25 January
- Only a few days are left to submit applications for the third SEISS grant
- What could Budget 2021 have in store?
- HM Revenue & Customs increases the threshold for Self-Assessment online payment plan service to £30,000
- Independent commission argues against annual wealth tax but advocates a one-off charge
- Could the Government be about to launch a new permanent state-backed small business loan scheme?
- HMRC issues new warning over lockdown fraudsters
- FSB proposes move to turn Covid emergency debt into shared ownership schemes
- VAT – Post-Brexit arrangements
- Insurance industry to pay out on COVID-19 business interruption claims
- Are you making full use of the Government’s COVID-19 financial support package?
- Government extends agricultural visa scheme to fill jobs left by EU workers
- Brexit: UK Trader Scheme to support movement of goods between Britain and Northern Ireland
- Coronavirus furlough and loan schemes further extended
- Brexit trade deal negotiations continue as businesses warned to prepare for a ‘no deal’ scenario
- VAT under the Northern Ireland Protocol
- Northern Ireland customs duty arrangements confirmed
- Government launches new export finance guarantee scheme
- How can your business prepare for customs and VAT after Brexit?
- UK launches points-based post-Brexit immigration system
- Business Secretary writes to professional services sector ahead of end of Brexit transition period
- HMRC updates Statutory Residence Test due to COVID-19
- Scammers are targeting Self-Assessment taxpayers, says HMRC
- Eat Out to Help Out compliance checks underway
- Businesses face legal action over unpaid business rates
- HMRC publishes consultation on MTD for Corporation Tax
- HM Revenue & Customs issues Capital Gains Tax reminder
- Virtual Christmas parties eligible for £150 annual function exemption
- Grandparents set to increase gifting following pandemic and families set to inherit more than expected
- Access to European Union VAT refund system to end on 31 March 2021, HMRC confirms
- Brexit: How to claim grant funding to help cover the costs of completing new customs declarations
- Companies House to scrap paper reminder letters
- Third round of Self-Employment Income Support Scheme (SEISS) opens on Monday with tighter eligibility criteria
- Important deadlines approach for the furlough scheme
- Spending Review highlights long-term economic impact of Coronavirus pandemic
- The New COVID-19 Tier System
- VAT after the Brexit transition
- IFS predicts tax rises of more than £40 billion a year by the middle of the decade
- More than 50,000 people claim working from home tax relief through HM Revenue & Customs online portal
- HMRC called on to simplify the administration of tax reliefs
- A quarter of businesses don’t think they will be ready for post-Brexit Britain
- HMRC warns taxpayers still aren’t ready for Making Tax Digita
- Homebuyers need to start purchases this month to take advantage of Stamp Duty savings
- Daily penalties waived for Self-Assessment late filing
- Furlough scheme update – Publication of claims and employees serving notice
- Extended Coronavirus Job Retention Scheme FAQ
- Government extends furlough scheme and provides a boost to SEISS
- Government extends further help to businesses and the self-employed during national lockdown
- National Lockdown – Extension to the Coronavirus Job Retention Scheme and Business Support Update
- Government extends further support to businesses affected by COVID-19
- HM Revenue & Customs publishes further details of the Job Support Scheme
- Annual Investment Allowance – Time is running out
- Accounting for mobile phone use
- Time to prepare (once again) for the VAT reverse charge
- Is the Government considering a National Living Wage freeze?
- Companies House reforms to combat fraud and assist businesses
- Price of plastic bags in England to double to 10p
- New Coronavirus regulations place self-isolation obligations on employers
- Latest SEISS grants introduce new qualifying conditions
- Businesses may be entitled to insurance pay-out after important judgment
- Chancellor expands Job Support Scheme and grants to businesses facing new COVID-19 restrictions
- Government issues new guidance on the Job Retention Bonus
- Download the Government’s guide to the Job Support Scheme
- Important message to clients and friends: We are working remotely on recommendation from the PM, please read the following update
- Chancellor announces new Job Support Scheme and package of business support measures
- Change to Companies House bank detailsanies House bank details
- More than £1 billion in tax reliefs for creative industry
- Advisory Fuel Rates for next quarter come into effect
- Key dates for the Coronavirus Job Retention Scheme
- The first Child Trust Funds (CTFs) can now be claimed
- Four in five SMEs are confident over their Coronavirus recovery
- HM Revenue & Customs (HMRC) writes to 3,000 employers over furlough claims
- Government to launch new local lockdown grants
- CBILS ends on 30th September 2020
- How will you rebuild and recover? Funding launched to cover cost of professional advice
- Tax changes outlined in draft Finance Bill 2020 – 2021
- Coronavirus Business Interruption Loan Scheme expanded to more businesses
- VAT treatment of imported goods up to £135 to change under new rules
- HM Revenue & Customs publishes Job Retention Bonus guidance
- Small business Covid recovery boosted by £20million in new grants
- HM Revenue & Customs sets out Making Tax Digital plans for VAT and Income Tax
- HM Revenue & Customs sets out details of penalties for breaches of furlough and self-employment scheme rules
- Reminder: VAT payment deferral period has ended
- Banks list top 10 Coronavirus scams
- HM Revenue & Customs issues ‘nudge’ letters to people suspected of having undeclared overseas assets
- Second round of Self-Employment Income Support Scheme (SEISS) opens on Monday
- Key dates for Coronavirus support schemes, tax and Companies House
- Government extends childcare funding for families affected by the pandemic
- Green Homes Grant guidance published
- Eat Out to Help Out opens for claims
- Key dates for Coronavirus support schemes
- Eat out to help out
- New legislation introduced to protect redundancy pay of furloughed workers
- Seven tips to get start-ups off the ground
- Government confirms Coronavirus tax concessions in amended Finance Bill
- Future Fund expanded to more businesses
- Research finds lack of knowledge, information and skills are key barriers to Making Tax Digital compliance
- New corporate insolvency rules come into effect
- £84 billion of R&D tax credits unclaimed – Could you be eligible for a share of this funding?
- Government confirms Job Retention Bonus of £1,000