Clear Vision’s Managing Director Matthew Rogers shares his experience and advice in this challenging area.
There is much attention on the rising cost of living.
As business owners, we also have the challenge of managing increased costs.
I can relate to this pressure, so I thought I’d share some of the areas I continue to recommend and consider while managing costs for my business in case they help you.
1. Track your cash breakeven figure
First and foremost, I keep my eye on the cash breakeven figure for my business.
Your cash breakeven figure is the monthly sales figure required to meet the needs of all your stakeholders (including you), so it’s an important metric for you to track.
Referring to our business income forecast, I can see whether we are likely to reach this figure over the coming months. Forecast looks good. Happy days!
When we are short of the breakeven figure, I look at the impact on our marketing strategy and form a plan to bridge the gap.
There will be several areas you can ‘pedal harder’ on to increase the short, medium, and long-term income of your business.
For example, working to increase the number of recommendations your customers make to others. Increasing the level of new business leads and conversions. You’ll know what these areas are for you.
This review and plan process is the key to managing your rising costs.
2. Regularly review your costs
A basic tip but one that bears reinforcing.
We all know costs are rising, but which of your costs are necessary to running your business? Are there any that you can stop, without it adversely affecting your business? A bit like having an unused gym membership, there can be subscriptions and so on that are no longer relevant to running your business that you can stop paying.
You can use your accounting software to help produce a list of your costs to review.
Check out our 3 steps to business cost efficiency video if you need help with this process.
3. Cashflow forecasting
Cashflow issues for many businesses are being exacerbated by the current rise in business costs.
Using a 13-week rolling forecast helps you maintain control and peace of mind over your cashflow.
The accuracy of a forecast degrades the further it extends into the future. 13 weeks provides enough visibility for you to prepare for any cashflow issues before they occur and supports longer term strategic decision making, while remaining short-term enough to be able to provide a high degree of accuracy.
If you struggle to set up your 13-week forecast, drop me an email to email@example.com and I’ll be glad to provide you with a copy of our cashflow forecast template. It’s easy to use.
4. Convert ideal work
Make sure you are converting ideal work for your business. Ideal work being work you are able to manage effectively to generate a healthy profit margin, thereby helping to increase the contribution towards your rising overhead costs.
5. Team structure
Is your team motivated and working effectively?
Checking in regularly with team members will allow you to understand how your people are feeling and whether there are any negative influences on this.
Knowing allows you to act and keep the squad fit and healthy.
6. Business systemisation
Carrying out your regular working tasks in an efficient and consistent way saves your business both time and money. Not to mention providing opportunities to delegate tasks effectively and provide a more predictable experience for your customers (which saves you money as you will keep more of them and avoid the expense of replacing them with new customers).
The process of systemising your business can seem daunting and this may have led to you putting off the task and missing out on the huge number of business and personal benefits it brings.
Our step-by-step guide will help you to systemise in the right way, with the right priorities. I invite you to make use of it.
7. Use your tax and employer allowances
Your business is entitled to certain allowances. This will differ depending on your business status and circumstances, but here are few of the main ones. Make sure you use these allowances.
If you have a limited company:
- Director remuneration – If you have a limited company, consider a different way to pay your directors which saves your business money. Just make sure you are clear about the advantages AND disadvantages of changing your remuneration strategy – both for you and your business.
- Capital Allowances – When you purchase equipment and machinery for your business you can usually deduct the full amount from the profits that you will pay tax on. This can be done using your Annual Investment Allowance (AIA). The AIA has temporarily increased to £1million until 31 March 2023. Not every business purchase can be deducted in this way and it’s important to check if yours will qualify.
- Employer Allowance – The Employment Allowance can be claimed by many businesses. Note there are business criteria to be met, one of which is having National Insurance (NI) liabilities less than £100,00 in the previous tax year. This allowance reduces your annual NI liability by up to £5,000 and is claimed through your payroll system.
- Research & Development Tax Credits – Limited companies working on eligible projects that make an advance in science or technology can claim this valuable tax relief, in the form of a reduction in Corporation Tax or cash repayment. Get in touch for further details.
- Business Entertainment and Employee Subsistence Tax Relief – Make sure you claim the appropriate tax relief on your business social events, employee subsistence and customer entertainment. This guide summarises the current tax rules
8. Keep an eye on local/national grants
New business grants crop up from time to time, both on a local and national level.
Government grants tend to be administered by its network of Business Growth Hubs. Check which Growth Hub covers your area and bookmark their website for reference/sign up to receive their email updates.
There are other online grant finder facilities you can keep an eye on, including this one from NatWest Bank.
Matthew Rogers FCCA