Ten tips to improve the profits of your business

Sean Rustrick • 31 August 2023

Making a good profit is the lifeblood of any business, especially for small to medium-sized businesses (SMBs). It determines how sustainable and successful your business is and how much it can grow. Today's markets are very competitive, so in this blog post, we will explore ten effective strategies for you to quickly think about and implement to improve the profitability of your business . By understanding the purpose and need for each strategy, businesses can make informed decisions and drive positive change to increase their profits.


1. Reduce your costs:

Cost reduction is an essential method for SMBs to improve profitability. By identifying and eliminating unnecessary expenses, you can optimise your operations and increase your bottom line and end up with more money in the bank! For example, regular checks of your costs and outgoings can help identify areas where expenses can be reduced, such as excessive energy consumption or inefficient processes.


  • Example: A review of standing orders and direct debits can reveal payments for services that are no longer used or required.


2. Purchase efficiently:

Efficient purchasing goes hand in hand with cost reduction. By negotiating better prices with your suppliers, exploring bulk purchasing options, or seeking out alternative supplier contracts, a business can reduce their various costs.

 

  • Example: Regularly review your overheads and see whether your current supplier or another supplier can requote or offer discounts for the same service.


3. Increase your sales:

Increasing sales is a fundamental way to increase profits. You can achieve this by focusing on obtaining new customers and making sure existing customers are happy with your service and fees, improving them as necessary. For instance, you can use targeted marketing campaigns to reach your ideal customers or offer discounts to incentivise repeat purchases. Additionally, using social media platforms and online marketplaces can expand your customer reach and boost sales.


  • Example: Offering limited-time promotions or discounts can incentivise customers to make more frequent purchases, boosting sales and revenue for a restaurant.


4. Streamline your operations:

Streamlining operations involves improving workflows and processes to increase efficiency. By identifying bottlenecks, eliminating redundancies, and automating repetitive tasks, your business can save time and resources. This allows you to allocate your resources more effectively, which leads to  improved profitability.


  • Example: Integrating a cloud-based inventory management system can automate stock tracking, reducing inventory holding costs for a manufacturing company.

 

5. Target your marketing:

Targeted marketing is a powerful way to maximise the return on marketing budgets. By identifying your target customers and tailoring your marketing efforts accordingly, your business can reach more of the people who want what you’re offering and reduce wasteful spending.


  • Example: A local bakery could target its marketing efforts towards nearby residents through direct mail campaigns or localised social media advertising.


6. Upsell and Cross-sell:

You can increase average transaction values and boost your profits by encouraging customers to purchase a comparable higher end product than the one in question. In addition, some customers may be unaware of the other services you provide, so by offering complementary products or services during the sales process, you can encourage them to spend more. For example, a software company could offer premium features or add-ons to their basic package, providing additional value to customers while increasing revenue.


  • Example: An IT service company can offer additional features or upgrade options to existing customers, thereby increasing the average transaction value and profitability.


7. Enhance your customer service:

We all appreciate great customer service and this is crucial for your business to build loyalty and generate repeat business. By investing in employee training programmes and implementing customer feedback systems, you can improve your business’ service quality. This leads to higher customer satisfaction, your customers remain loyal to you and ultimately, your profits improve.


  • Example: Providing exceptional after-sales support and timely resolution of customer queries can increase customer satisfaction, loyalty, and repeat business for a service-based business.


8. Diversify your revenue streams:

It can be risky for a business to rely on a single source of revenue. Diversifying revenue streams can provide stability and reduce potential losses. Businesses can explore new product lines, expand into different markets, or offer additional services to existing customers.


  • Example: A fitness studio could introduce online classes or sell branded merchandise to diversify its income streams.


9. Optimise your pricing:

Pricing plays a crucial role in profitability. Analyse market trends, see what other people charge and conduct pricing experiments to find the best price point for your business’ products or services. Many businesses, especially small ones, quite often underprice the great product or service they supply.


  • Example: A software-as-a-service (SaaS) company could offer different pricing options to cater for different customer needs.

 

 10. Invest in training and development:

Investing in training and development programmes for employees can yield long-term benefits. If you enhance the skills and knowledge of the people who work for you, your business can improve its productivity, customer service, overall performance and staff satisfaction. This leads to increased efficiency, reduced errors, and improved profits.


  • Example: A retail store could provide sales training to its staff to improve upselling techniques and customer satisfaction.


So, to sum up …..

Improving profits is essential for the long-term success of any business. By considering these ten strategies, your business  can optimise its operations, increase sales, reduce costs, and enhance customer satisfaction and retention. It's important to remember that profitability requires a holistic approach, focusing on multiple business areas simultaneously. By continuously evaluating and adapting these strategies, SMBs can thrive in today's competitive landscape.

Rollover Relief could save you Capital Gains Tax

9 June 2025
You can reduce your capital gains tax liability by using proceeds from the sale of one asset to reinvest in the purchase of a new asset- this is called Rollover Relief. To qualify for Rollover Relief, you have to get rid of an old asset (which was used only for trade purposes) and then get a new asset (that will only be used for trade purposes). If you are a sole trader, you can use the new asset for a different trade but there must not be a gap longer than three years between these trades. Qualifying assets include buildings, land, plant and machinery used for your trade, but will not include shares and securities. Rollover Relief can be claimed if the proceeds of the old asset are used to enhance the value of other trade assets immediately, or if you use the proceeds to acquire a further interest in another asset (that is already used for trading purposes). You will get the full Rollover Relief if you reinvest all of the proceeds of your asset sales, if you only partially reinvest, then the relief will be proportionate. If you reinvest in a depreciating asset (an asset with a predictable life of 60 years or less e.g. machinery) there will be special rules. Any rolled-over gain from the depreciating asset is not deducted from the cost of the replacement asset, instead it is frozen until the replacement asset is no longer being used for trade purposes, or ten years from the acquisition of the depreciating asset. The new asset must be acquired 12 months before the disposal of the old asset or three years after the disposal. A claim has to be made within four years after the end of the tax year when the disposal happened or the new asset was acquired. Give us a call on  01622 738165  and we can help you decide if Rollover Relief is right for you!

New PAYE procedures are being overlooked

by Sean Rustrick • 4 June 2025
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1 Person Companies

by Sean Rustrick • 2 June 2025
Did you know that the Employment Allowance (EA) has more than doubled? It now stands at £10,500! EA is the amount that employers can deduct from their annual NI bill. But why has it increased so drastically? Basically it is to soften the blow of the increase to employers’ NI rate (to 15%) and the lowering of the point at which employers must start paying NI on an employee’s salary (£5,000 per annum). Watch out! Employers may be excluded from entitlement to EA if the company only has one employee who is also a director and the only person paid by the company. It doesn’t matter how many shareholders/directors a company has, what matters is who is paid above the secondary earnings threshold. So how do you get around this? Simply pay another person just enough to prevent the exclusion from applying to the company! Even if this is just for one week in a tax year, you will qualify for the full £10,500! It is a simple solution and a very easy thing to capitalise on! Make sure you aren’t missing out by giving us a call today on  01622 738165  - we will be more than happy to help you.

Joint Properties and Form 17

by Sean Rustrick • 26 May 2025
When spouses own a property together, they are taxed 50% equally on any income that may arise. However, when they own property as tenants in common and in unequal shares, they can elect for the income to be split for tax purposes like their ownership- to do this you use a Form 17 (watch out- it can’t be split differently to the share balance!). After a Form 17 election has been made, it has to get to HMRC within 60 days of the date of the last signature. From this date, the income is split according to the shares, anything before this date is treated as arising equally. This election is useful because you get a lower tax bill- you won’t be taxed on 50% of the income! For example, Bob has a 95% share and Bill has a 5% share. They make £10,000 rental profit a year and Bob has no other income whilst Bill is a higher rate taxpayer. Bob will be taxed on 95% of the profits (£9,500) which would be tax-free (it is under his personal allowance) whilst Bill is only taxed on 5% (£500) which is only £200. They are both saving tax! This can be hard to get your head around- give us a call on  01622 738165  and let us work out the best solution for you!

Spring Statement

by Sean Rustrick • 23 May 2025
How is the spring statement going to affect you?

Are you treating repairs and improvements correctly?

by Sean Rustrick • 7 April 2025
The way that expenses relating to business premises are grouped can often cause problems with HMRC if they are found out to be non-deductible for tax purposes. If you take the correct steps to begin with it makes everything a lot smoother! Before recording any property expenditure, first identify if it is a revenue cost (day-to-day expense) like decoration or maintenance or a capital cost. A capital cost could be divided into two sections: 1. Acquisition/Improvement of building or structure 2. Plant/machinery/ equipment that is permanently attached to the building (lights, water system etc) Remember, if you do your own bookkeeping there is a much higher risk of errors- so double check everything! Revenue costs: if you incur a repair or maintenance cost relating to the premise, a tax deduction for the expense is allowed in the same way that other revenue expenditure (energy bills, staff costs and overheads) are recorded in the profit and loss account. Capital costs: these tend to be extensive and go beyond simple repairs. Capital expenditure should be recorded as a fixed asset on the business’ balance sheet. Hidden capital costs: there can be costs that are normally treated as revenue but can also be related to capital improvements. For example, you may have changed your office into an open plan structure (capital) but now need to paint the walls. This cost is related to capital and not revenue! Timing also comes into play for determining if expenses are capital or revenue. If a building is acquired in a condition that stops it from being used for the purpose it was intended for, expenses incurred to make it fit for use are usually capital even if they fall under the revenue category. Categorization is not always simple and luckily HMRC will accept a common-sense approach to it! No deduction from profits is allowed for capital expenditure if it has been incurred on or after 29 October 2018. However, it may qualify for a special capital allowance deduction known as the structures and buildings allowance (SBA). The tax relief for SBAs is equal to 3% of the costs per year (2% until April 2020). If you need help identifying what is a hidden capital cost and whether your capital costs may be eligible for the SBA, give us a call on 01622 738165- we are here to give you a helping hand!

Are you buying a car or a commercial vehicle in 2025?

by Sean Rustrick • 4 April 2025
Direct tax rules are changing in April 2025 and more vehicles are being classed as cars rather than commercial vehicles. VAT is not claimable when buying a new car, however it can be claimed when a car will be used as a tool of trade (e.g. a car hire business, driving school or taxi firm). Input tax can also be claimed on a genuine car that is used for carpooling and made available for use by all staff and not kept overnight at an employee’s home. Input tax can be claimed on a purchase of a commercial vehicle which has three/four wheels (no motorbike!), has been constructed solely/mainly to carry passengers and has roofed accommodation to the rear of the driver’s seat with side windows. Put simply, if it can carry either only one passenger, or over twelve passengers it is not a car and so it does not count. Like most things, there are exceptions to this rule. If the vehicle has an unladen weight of three tonnes or more it will always be classed as a commercial vehicle. Caravans, ambulances and prison vans are commercial vehicles. If you are planning to purchase a car, van or combi-van, it is worth checking out if it is a commercial vehicle. Get in contact today on 01622 738165 and we can advise you on what would be best for you and your business.

Have you exceeded the registration threshold?

by Sean Rustrick • 2 April 2025
Have you noticed that your company has temporarily exceeded the VAT registration threshold? You know that it is unlikely you will exceed the threshold in the foreseeable future, can you just ignore it? As a business owner, you can voluntarily register for VAT as soon as you start or intend to start trading. You have to register when your sales turnover exceeds the registration threshold (£90,000 in any twelve-month period). For VAT purposes, your turnover includes all businesses you own, so if you have two companies, it will be the combined turnover compared with the threshold. You can ask HMRC for an exception from registration by providing evidence that the threshold was only exceeded temporarily. You must be able to convince HMRC that your turnover is not expected to exceed the deregistration threshold of £88,000 at any time in the twelve months following the date on which the registration threshold was exceeded. If you fail to apply for the exception, HMRC may assess you for VAT on all sales from the date you should have registered! So, if your turnover temporarily exceeds the limit, you should apply for registration and ask for the exception by answering 10 questions on the application form. The deadline is often missed but it is not a huge problem. You can make a late application but you will need an explanation with your application explaining how, at the time the registration threshold was exceeded, you could have known that your future turnover would be less than the deregistration threshold. If you need help with this explanation or need further information, give us a call on 01622 738165 and the team will be happy to help.

Are employer pension contributions worth it?

by Sean Rustrick • 31 March 2025
Does the Inheritance Tax (IHT) charge on pensions coming in April 2027 mean that employer pension contributions are now nullified?

Tax Relief on Travel Expenses

by Sean Rustrick • 27 March 2025
Any payment or reimbursement of job expenses by an employer is exempt from PAYE tax and NI. However, job-related travel does have its own special set of rules. Any exemptions applies when the travel expense is either: Made in the course of doing your job (if your role involves visiting customers) For a temporary purpose required by your job (you need to check a building site etc) Travel expenses cover all associated costs so this means that things such as hotel bills and subsistence are also included! Even if the expenses are exempt or taxable, it does not affect the business’s right to deduct the cost when working out taxable profits or losses. But, if the expense is not exempt, the employer is liable to Class 1 or Class 1A NI (at 15% for 2025/26!). But, some tax inspectors sometimes argue that some travel costs are more luxurious than they need to be. If so, HMRC has the right to treat the expense as a reward for the employee and so it is not covered by the exemption. This means that at least a part of it would be taxable and liable to NI. To make sure this doesn’t happen, just take a reasonable approach- HMRC can’t dictate what hotel you stay in! If you are challenged about the expenses by HMRC get in contact with us on 01622 738165 and we can help you with the internal guidance.
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