Why your business will make less money from April – unless you act now

Kirsty Young Business Tips, Limited Company, Tax

For most small business owners, their business will become less profitable, or even unviable, from April. The same could happen to you – unless you act now.

The main reasons for this are:

  • Rising costs of your products and services (and utilities!)
  • Increase in National Insurance and the introduction of the Health and Social Care Levy (+1.25%)
  • If you are an employer, the rise in National Living and minimum wages (4.1% – 9.8%)
  • If you own a limited company owner, the rise in the rate of dividend tax (+1.25%)
  • If you have loans/borrowed money, the Bank of England base rate has just risen by 0.25% to 0.75%

On top of this, for many limited companies, Corporation Tax is going up from April next year (2023), adding further pressure.

If you do nothing about these rising costs of business, this will have a financial impact on you.


So, what can I do?

You really have two choices:

  • Cut costs.
  • Increase income.

Cutting costs

In times of financial stress, you might think it’s easiest to simply start cutting costs.

That’s true – up to a point. While reviewing your existing arrangements and overheads is a solid starting point, a lot of the time there isn’t much to trim.

You may find, for example, you have software you don’t use or similar that can be cancelled. However, many of your key business costs will still apply.

In our experience, doing this “trimming” exercise with business owners, the outcome is very similar to when you attempt to cut your home bills. There is only so much you can cut and doing so never feels great!

Increasing income

It’s usually better to concentrate on increasing your income, rather than reducing your expenses.

To increase income, you can generally do three things:

    1. Increase the number of sales/clients/customers (Sell to more people)
    2. Increase the average spend or raise existing prices (Get more money from those you already sell to)
    3. Reduce your tax burden (Be more tax efficient)

It may surprise you to know that 2. (increase spend or raise prices) is often the best way to deal with this. This one scares many owners as they are worried about losing customers or sales as a result of increased prices. However, in our experience, this is rarely the case.


Do the maths

If you do the maths, often you can afford to lose quite a few clients before a price rise become a Bad Idea. In most outcomes, you end up doing less work for more money! This can open up capacity for future, better paying clients.

The challenge is packaging your product or service for the best value, and then communicating both the value and the increase in price. Practically this can be quite a mission to do!

Of course, you can do option 1. (We’d presume most business are actively trying to do this anyway!) However, this often proves to not be the quick solution you might expect. It can also prove a more costly one, as it normally requires some sort of investment.

The other thing to ensure, is that you are tax efficient, i.e. you are only paying the right amount of tax and no more. Not overpaying on tax will instantly create more profit, without the need to do anything else!


Short-Term Action Plan

Here are steps you can take now to help keep costs down and profits up.

  • Review the impact of the increase of costs from April. Create a simple budget (you can use a template from our blog HERE).
  • Review your prices – can you increase them?
  • Do the maths – if you lost some of your clients, but raised prices, how does it look?
  • How will you communicate this change in price? What needs to happen?
  • When communicating, do you need to repackage your offer to increase value?
  • Review your marketing – can you increase leads for not a lot of investment?
  • Review your sales activity – can you increase conversation rate or average spend for not a lot of investment?
  • Review your set up from a tax point of view – are you set up efficiently? Are you claiming everything you should be?

The above will be a great starting point to prepare you for the challenges of the next financial year.


It’s all a bit daunting on my own…

We’re here to help! Book a one-off session with us to look at all the key points above – costs, pricing, marketing spend, etc.

If that sounds like good to you, contact us and book a session soon. We have 20+ experienced and enthusiastic accountants in our team all poised and ready to help you!