“Many businesses need to increase turnover by 19% just to stand still”

With the cost-of-living crisis, inflation, and tax rises, many businesses need to increase turnover by 19% just to stand still. We hate to be doom and gloom all the time, but if you’re not proactive, your tax bill will arrive in January 2025, and it’ll be too late to weather this challenge.

So, let’s look an example of what this may mean for you:

• A limited company with no employees
• With a turnover of: £150,000
• A net profit of: £120,000
• A net profit margin of: 80%
• Due to the big change in corporation tax with marginal rate of 26.5% for profits between £50,000 to £250,000, 10.05% inflation (as of Jan 2023) and rising costs
• The real term equivalent net income is effectively £90,378 (compared to £103,797 in 2022/23)
• That is a £13,418 reduction

In this example, you’d need to increase your turnover to £178,498 (by 19%) to match the same take home.

So where does this 19% come from? 

• Price increases
• Increase in volume
• New business
• Increase in productivity
• Efficiencies

And where do you start? 

1. Ensure your accounts are up to date so you have a clear picture of what you need to do. Read our article on the benefits of having up to date management accounts 
2. If you haven’t already increased your prices this year, increase them. We have a detailed article here on how to increase your prices without upsetting your customers. It may be that you offer higher value services or products, package some together or justify your costs and why the price increase is necessary
3. Focus on the top half of your accounts (Turnover, cost of sales, gross profit)
4. Assess profit trees – where does most of your profit come from? Can you do more of that profitable work?
5. Cut low margin products and services unless loss leaders
6. Cut poorly priced jobs/over-serviced clients
7. Negotiate with your cost of sales suppliers – bulk buying powers
8. Plan to leverage your time as you can add the most value to your business

What the Budget really means for owner-managed businesses – Event recording

In the below video we share all the facts you need to know and our advice on how you formulate a plan to not let this challenging time damage your business.