Marginal gains: carve out better returns in a stagnant economy
The concept of marginal gains was thought-up by the British Olympic Cycling Team; keeping a keen eye on the right data can identify opportunities for small tweaks that can add up to a big difference. And the same is true in business – as one of our clients recently discovered.
Tax-saving masterstroke
This client is a South West company with 35 employees, and we’ve been working with them for about 18 months. Their profits had taken an uptick, and they were consequently facing a tax bill to the tune of £70,000. So, we advised them to make a major and immediate investment in fixed assets, which would allow for 100% capital allowance.
This took their liability right down from its original high watermark to around £5K.
How we did it
That tax-slashing manoeuvre was only made possible because we kept a firm tab on their gross margin, profit and tax on a quarter-by-quarter basis. The three- and the six-month reviews showed us that our client was going to build up a considerable profit, and that now was time to start thinking about investing.
So when the nine-month quarter came around, we did a root and branch investment report, presented in a way that our client could clearly understand. Then, although the timings were tight, we were able to implement actions before their accounting year-end.
Early birds
That’s about as clear as demonstrations come that early advice and regular, thorough scrutiny of the right data can deliver great value. It's all about early warnings and keeping sight of the numbers. Wait until the accounting period is finished to consider the figures on the other hand, and you can’t change anything; not pensions, bonuses or any of the other levers that can be pushed to save you money. You just file your accounts, pay the bill, and that's it. There’s no notice or opportunity to make adjustments.
Not every business is going to experience the same situation as this particular client, but scratch beneath the surface of your finances and you’re likely to find information that will make a big difference. Whatever kind of organisation you run.
Eyes on the data
To get a clear view of the financial insights that matter to you, you’ll need a good accounting platform such as Xero. Use that, and you’ll be able to see what your gross margin, profit, and tax figures look like year-round. That will give you a good indication of where your wider profits and losses stand, and of course, when you notice potential upcoming costs, you can tweak accordingly.
Spin the dials
So, you’ve been watching the data. You know you need to make changes. But where do marginal gains lie waiting to be found? Potentially anywhere. But investment charges, compound interest, price rises, operational costs and contract renegotiation are all places where often screws can be tightened, and more juice can be squeezed.
Let me go back to our client for a second. When fuel prices suddenly spiked last year, their profits were decimated. But we saw it coming. And the foresight gleaned from our quarter-by-quarter approach meant we were able to make informed decisions on capital expenditure. We took stock of the situation, and to compensate for the costs, introduced a fuel surcharge. That supported our client through the market turbulence, and after fuel prices stabilised, their profits returned and their finances were undented.
Now more than ever
The Budget has been announced, and we always knew this was going to be a tricky one. Minimum wage has gone up. National Insurance has also increased. Those changes aren’t going to slip by unnoticed by any business owner. Add to that a stagnant economy that has little chance of being re-energised overnight and there’s no avoiding it: businesses are facing a lot of cost issues. But with the right data and backed by the right accountants, you can uncover marginal gains that have the power to mitigate them.
Trusted advice
Could you benefit from keeping an eye on the right data and the counsel of a trusted accountant who can help you act on the information you’re seeing? Let’s have a conversation.
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