What are the effects of inflation and what it means for your business’s long term health?

What are the effects of inflation and what it means for your business’s long term health?

Brexit and Covid combined have led to some unpleasant aftershocks for small businesses. These include staff shortages and also spiralling wage and raw material costs. In this blog, we’ll be talking about all those issues that might affect your business’s long term health and how you can tackle them to make the right financial decision. 

What is actually happening?

There are several factors at play right now which are driving up most small businesses’ raw materials, stock and wages costs. These are:

  1. Brexit has meant a large proportion of the EU migrants who came over in the last 5-10 years have now returned to their home countries. For example, the demand for construction workers is nearly at a 20-year high, according to the Office for National Statistics. The fall in employment levels is due to a 4% fall in UK-born workers and a 42% fall in EU workers.
  2. Shipping companies and suppliers of raw materials and goods are now passing on the costs of increased administration to ship stuff between the UK and Europe.
  3. There is a shortage of building materials caused by increased building and home improvement activity in 2020. This has been compounded by the lockdowns reducing the output from the factories. 
  4. The Covid-related restrictions on travel and requirements to self-isolate have resulted in many manufacturers not being able to run at full capacity. This is leading to a shortage of key materials and items.
  5. The shortage of building materials and demand outstripping labour supply has meant that wages in the construction materials factories have had to rise significantly. These costs are now being passed onto the trades, manufacturers and construction companies. 
  6. It is taking longer for raw materials and goods to get into the UK. 60% of imported materials used in UK construction projects comes from the EU according to CLC. Brexit has negatively affected the time it takes to get goods and raw materials into the UK.

What is the risk to your business?

  1. Your pricing may not factor in the increased labour costs and material costs. If you haven’t reviewed your current and future cost base, now is the time to do this.
  2. Between agreeing on a price for a job with a customer and carrying out the work, your raw material and labour costs may increase significantly. The likelihood is that labour costs will not reduce in the short- or medium-term. Your business could then make a loss on the work, through no fault of your own. If you are concerned about this then come and talk to us. We can help you think through your pricing going forward so you are profitable regardless of what happens with your cost base.
  3. The increased costs of raw materials mean you may not now be able to afford to buy in bulk. This will hit your cost of sales.
  4. Your credit limits with suppliers are unlikely to have changed, but the cost of your orders may have gone up significantly. This means to make your normal order size, say for door handles, you need to utilise your own cash as your credit limit is no longer sufficient. This means your own cash is tied up for longer with your stock and may cause your business significant cash flow issues. Particularly if the shortage of labour and lengthening shipping times means it takes longer to build and fulfil your customer’s orders.

What can you do about the risk to your business through rising costs?

No one has a crystal ball and can predict the future. With that being said, however, these actions or strategies may help you going forward:

  1. Fix your cost prices at the time you commit to a price with a customer. I.e. get assurances or, better still, a written contract from your suppliers guaranteeing the price at the time you need the materials or stock.
  2. Look to see whether you can source more of your raw materials or stock from UK-based suppliers. This may not solve all your problems, but it does get around the supply chain delays and costs at the EU/UK borders.
  3. Speak to us about access to finance. The traditional banks are notorious for taking ages to approve an overdraft or loan. We can find you alternative lines of credit to keep your cash flowing as you navigate the next 3-6 months.
  4. Renegotiate some of your long-term contracts if they are no longer profitable or sustainable on the current terms.
  5. Look after your current staff well and start paying them the new market rates for their type of work. 

How can we help?

We have received multiple questions this year from our clients and other SME owners that they are facing the after-effects of Brexit and Covid and are worried about their business’s long term health. They are seeing issues in payroll, remote working, understanding tax reliefs and shortage of staff.  

We have been continually advising them to contact a professional accounting & bookkeeping services expert who can help to enhance business performance and provide useful insights to deal with the aftermaths of Covid-19 and Brexit.

If you are also looking for an accountant to offer personalised services for your business, then Booka call with our CEO Suzy Kerton. Let’s see how we can increase your business’s long term health!

For more information, contact us at:

Also Read: Is your small business struggling to make a decent profit?

Is your small business struggling to make a decent profit? Here are six little known profit holes.

Is your small business struggling to make a decent profit? Here are six little known profit holes.

With the economy gearing up, there has never been a more essential time to take a good look at your overheads and cost of sales. Then, add into the mix the rising cost of labour, materials and shipping, and this exercise to examine your cost base may be the difference between your business having a good year or going under in the next. 

This article will look at the 6 most common profit holes that many small businesses may have. Continue reading to make your small business successful in this competitive market.  

Pricing: Has it kept up with your costs?

It’s been a difficult year, I hear you say. Are you in your head thinking that your customers and clients can’t swallow an increase? Well, think again – this is often the small voice of doubt in our minds. 

If Starbucks and Costa Coffee can afford to still charge eye-watering amounts for a slice of cake and a coffee throughout the pandemic, then you can look at your pricing. Your small business is struggling because your products & services are not priced effectively. 

Often, the biggest profit hole we see with our clients is around a poor pricing strategy. Such as:

  • Are your sales team discounting too much in order to make the sale? Particularly for wholesale or bulk orders?
  • Have you kept your prices static whilst your costs have increased?
  • Are your prices in line with your cost base now, rather than when you were a much smaller business. For example, if your prices have not changed since you ran your business from the kitchen table, then it’s time to relook at your pricing. (And yes, we can help you with this, if needed.)

Do you have a revolving door for employees?

Hiring new staff members is expensive; recruitment agency costs, training costs and senior management time spent hiring and training. Losing good employees is even more expensive – both in terms of opportunity cost and also the hit on morale when a good person leaves. 

If you do have an employee turnover problem, it’s time to take a good look at how to increase the levels of employee engagement in your business. Being very blunt here, you may look into the mirror to see how you personally may be part of the problem.

Software costs: Have you had a good look to see what you’re really using?

Those $15 a month per user type subscriptions really do add up over time. How many user licences are you still paying for but don’t actually need? How many of those pieces of software that you decided to try out are you actually using? 

If you used all the features of your core software, how many other licences or subscriptions could you ditch? You may find that a good look at your software stack could yield a large amount of ‘money down the back of the sofa’ each month.

Suppliers: Are they taking the proverbial?

We’ve seen this in our business too. It is where we’ve worked with a supplier for years. Both we and they have got comfortable and complacency sets in. This cosiness was hiding the fact that we were not getting the service we required. 

Even worse, the prices we were paying were now out of step with the marketplace. Inertia and a desire to avoid conflict were stopping us from having a ‘state of the nation type’ conversation with the supplier.

In our experience, the first place to look at is your spending with marketing suppliers. Then your telephone and internet suppliers. What are they really delivering? Do they need a shakeup? Our advice to you is, if this resonates with you, have that conversation!

Not using automation (particularly in your financial processes)

The cloud revolution which we keep harping on about has been a game-changer for not just accountants. The digital tools out there will help in making your small business successful and cut out so much physical paperwork & manual entry. 

For example, if you are a small cafe or pub you can now get great phone apps that will allow customers to place their orders from the table. Thus, improving the efficiency of your operation and waiting staff. 

Using bank rules, email rules and other types of automation in conjunction with software such as Dext (the new name for Receipt Bank) can reduce the time it takes to do your books or manage staff expenses. Why not have a chat with us to see where using apps and cloud-based software can take the grind out of your financial processes and systems? 

Doing it yourself

How long does it take you to do stuff which should be outsourced or done by others in your business? This ‘doing it yourself, particularly when it comes to things like bookkeeping or VAT returns, is often a false economy. 

Your time is much more valuable delighting customers and clients and running your business than puzzling over whether you can or can not claim VAT on your company car expenditure or that coffee with a client. 

Using the right people and suppliers to free you up to do what you’re best at is often a great way to generate more profit. 

It goes without saying that we are always happy to talk about whether we are a good home for your bookkeeping and other financial processes. 

How can we help?

Zyla Accountants has been helping small businesses like you, in making accounting strategies so that you have a strong knowledge of your accounts and finances. We help you analyse your books to make the right decisions for your company’s future.

Reach outto Suzy Kerton by booking a call on Calendly to discuss your business’ financial state.

For more information, contact us at:

Phone number: 0203 468 2241

Email us at [email protected]

Also Read: What is the cost of hiring an Accountant in the UK?

4 key numbers you need to know for effective cash flow planning

4 key numbers you need to know for effective cash flow planning

4 key numbers you need to know for effective cash flow planning

Poor cash flow planning is one of the biggest reasons that businesses in the UK fail. It’s not surprising really, as forecasting your cash flow can be tricky, not to mention that there are so many variables that determine how much is needed for operations, how much money you have coming in, and how much money you actually have to spend. Like we said, tricky (and a recipe for a headache).

While it is difficult, cash flow planning is absolutely essential to the success of a business. It ensures that you have the cash flow you need to not only survive, but thrive, and in any market or economy. 

As you can imagine, this is the dream for every business right now – to know that they are okay and that they can make payroll and keep up with the bills – in the midst of the recession. 

To be in this position, you need to start cash flow planning or forecasting and here are the main 4 numbers that you need to know. 

  • How much cash is in the bank 

It is crucial for a business to always know how much money is in the bank, but what makes a business successful is knowing how long that money will last based on their current spending. 

Just take the many businesses that were forced to close due to Covid as an example. They might not have generated adequate cash to meet monthly outgoings (e.g. rent, paying suppliers, paying employees, buying raw materials etc) for most of this year. So how have many of them survived? 

Through cash flow planning, many businesses know exactly how long they can survive before they go bust. Due to this knowledge, they’ve been able to plan ahead and make better business decisions to improve their position throughout the year.

  • Turnover (revenue and inventory)

Knowing your turnover or gross revenue (e.g. the total amount of money you’ve brought in from sales) is obviously a key number to know, but when it comes to your cash flow forecasting, things like inventory turnover are also essential.

Inventory turnover is the rate at which you keep and use all of your inventory after you have purchased it. You might not think that this number is essential to know, but inventory can actually hide a lot of problems and issues within the business that you wouldn’t otherwise see if you weren’t looking.

Imagine you have been buying too much inventory. Imagine the money you have available that is just sitting there. By looking at metrics like this while cash flow planning, you can know whether or not you should be buying more or less inventory at a time and what effect this will have on your profitability.

  • Cost of sales

While revenue is an essential number to know, the cost of sales is even more critical. Why? Because if making those sales cost you more than the money you brought in from them, you are actually making a loss and are heading for some major cash-flow problems.

Even if your business is growing, this doesn’t mean that you are heading in the right direction, so pay close attention to this number when cash flow planning. What costs are involved in making your sales (e.g. the cost of inventory if you sell tangibles or the cost of labour if you sell services etc)? 

A small decrease in the cost of sales can have as much impact on gross profit as a large increase in sales, so that is why it is so essential to know this number. If you’re aware of these costs, you can either negotiate with suppliers for better prices or tighten up work processes to reduce labour hours. 

  • Net profit

Net profit is the ultimate measure of a business’s success. It is your bottom line, i.e. everything you’ve made after you have subtracted all direct and fixed costs. 

So why is this important for cash flow planning? The net profit margin helps you to see whether you are generating enough profits from your sales and whether operating and overhead costs are being contained. If you’re not doing either, then you should know where and how you need to make adjustments. 

Don’t confuse cash flow with revenue!

Revenue is only a measurement of a one-way inflow of money whereas cash flow demonstrates all movement of money through your business (e.g. income, outgoings and existing cash in the business). 

That’s why cash flow forecasting is so essential, as you can use it to track your business’s financial health while also planning for any expected peaks or dips in business in the future.

So many numbers besides revenue indicate profitability, so you need to manage them ALL right before you can be sure that your revenue growth is cause for celebration (not commiseration!). Isn’t that what we all need in the current climate?

Seek Professional Help!

Zyla Accountants can assist you to enhance your cash flow planning. Managing everything in your own business can be testing so why not let Zyla Accountants deal with your cash flow, expenses, VAT, bookkeeping, and accounting needs? In case you are not getting the assistance you need from your bookkeeper or accountants, then, maybe it’s an opportunity to do the switch?

Booka direct call to solve all your bookkeeping related questions with our CEO Suzy Kerton 

Still not clear? Don’t worry, reach out to us at:

Phone number: 0203 468 2241

Email us at [email protected]

Also Read: UK Government-subsidised courses under the Help to Grow campaign

 

10 strategies to increase your profit margin (when you can’t increase demand)

10 strategies to increase your profit margin (when you can’t increase demand)

As author Dough Hall correctly put it, “if your profit margins aren’t rising, chances are your company isn’t thriving.” Makes sense when you think about it. If your profit margin is the actual money you get to walk away with after a transaction (your revenue minus your costs), you want to continually improve this number. To help you increase your profit margin, especially at a time where you’re unable to increase demand, we have here mentioned 10 strategies that you can start with.

  1. Raise your fees – this is the most obvious way to increase your profit margin as the more money you make on each sale, the wider your margin. If you haven’t raised your prices in a while, consider doing so.

  2. Reduce operating expenses – think about how you can streamline your operations to reduce costs. Can you lower your overheads by reducing wasteful spending? Would you benefit from automating administrative tasks?

  3. Upsell services to existing clients – your clients already know and trust you, so they are going to be significantly more receptive to other offers that you have. Upsell your other services that they could benefit from. Then, you’ll see this is a great way to improve your profit margin.

  4. Increase the productivity of your staff – increasing the output of your staff is a great strategy to increase your profits. From setting the right targets and motivating them to train your staff and helping them develop the right skills, you can do a lot to boost their performance.

  5. Identify and fix bottlenecks – in which areas are processes too slow? In what areas is their waste in your business? Bottlenecks cost you money and decrease your bottom line. Just comb through your processes and see what needs to be improved. Examples of waste are not utilising talent, waiting for work from others, and poor communication channels.

  6. Invest in savvier CRM software – while cloud-based systems and software cost initially, they can save a lot of time and money when it comes to those administrative and manual tasks. If you train the right staff on the right software, things like client enquiries, relationship management, email management, invoicing, and social media scheduling become a lot less painful.

  7. Improve inventory turnover – markdowns are known profit-killers, so avoid them at all costs. One way to do this is to better manage areas like inventory. Review your inventory turnover and make better decisions around purchasing, sales and marketing, and you’ll reduce the need for markdowns.

  8. Increase the perceived value of your brand – you need a strong brand, one that centres around the emotional and lifestyle values of your target audience. If you have a brand that connects with your audience and you position yourself as the go-to expert, you can charge a premium for your services.

Improve your bottom line

You don’t have to make drastic changes to increase your profit margin. Also, it’s not all down to increase your demand. 

The best way to continuously improve this number is to make effective tweaks to your business over time. They may seem like small changes at the moment.  However, these all build up and pave the way for wider profit margins! 

How Zyla Accountants can help you?

You should not be doing work that doesn’t fall under your expertise. It makes things worse. Most of our clients (before hiring us) had initially tried to take their accounts & books into their own hands and eventually got lost in them. 

Apart from handling your accounting & bookkeeping, Zyla Accountants has a motto that “We make Accounting Understandable”  for each client we work with. Our proficient team of friendly accountants take a fresh and flexible approach to get to know you and your business. They deliver the accounting services you actually need to make better financial decisions for your business. 

You know what? Just get on a call with our CEO Suzy Kerton and see what we can do for you. 

For more information:

Phone number: 0203 468 2241
Email us at [email protected]

Also Read: Company year end accounts checklist for limited companies

Autumn Budget 2021: What SMEs need to know?

Autumn Budget 2021: What SMEs need to know?

Chancellor Rishi Sunak’s second Budget this year strikes a high and hopeful tone, focussing on stepping up and building a more grounded UK economy with stable public funds as the nation recuperates from COVID-19, and fights with supply chain insufficiencies, and stresses of inflation knocking at 5%.

Rowena Mason, deputy political editor at The Guardian said, Sunak has adopted the prime minister’s claims that the UK needs to move to a “new economic model” of higher wages and productivity. He is sounding decidedly like a Johnsonian optimist, trumpeting better than expected economic growth, rather than focusing on fiscal discipline or balancing the books. However, inject a note of caution about the threat of inflation, while insisting it is a global problem.

Rishi Sunak says his budget plan conveys a solid economy for the British public: better development, public funds and business. The chancellor says he will give individuals the help they need to step up and enhance their cost of living. 

This report includes:

The SMBs in the UK are facing so much, be it corporation tax, increased inflation, and the 1.25% National Insurance increase to spend on the NHS and social care.

But, there were four major hits that SMBs took after his Autumn budget 2021. Let’s dive in and see:

  • Hit 1: Increase in corporation tax from 19% to 25%
  • Hit 2: Increase in dividend tax rate by 1.25%
  • Hit 3: Health and social care levy
  • Hit 4: Increase in National Living Wage 

In this report, we have discussed all these hits. Things like, what small businesses should know and what else was announced in the budget?

Download the full report made by our CEO Suzy Kerton to address the pain points of SMBs in the UK. 

If you have any queries related to the Autumn Budget 2021, please reach out to us at: 

 

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