Tips for Success & Financial Management | Navigating Business Essentials

Welcome to this edition of Business News, which features articles aimed at helping you expand your business. Please get in touch with us if you wish to discuss how these articles or any other updates may impact your business. We are here to support you!

Avoiding Business Pitfalls: 7 things you should NOT do as a business owner

Recent surveys of UK business owners reveal significant pressure, which comes as no surprise. As a business owner, you manage numerous responsibilities and confront challenges. While there are countless strategies for success, it’s equally crucial to be mindful of potential pitfalls that could thwart your efforts.

In this article, we’ll examine seven common mistakes that business owners should avoid at all costs.

1. Ignore financial management

Failure to properly manage finances is one of the most significant blunders a business owner can face. Failing to maintain accurate records and monitor cash flow and budget effectively can lead to financial instability and, ultimately, business failure.

Make it a priority to invest in robust accounting software, seek professional advice when necessary, and regularly review your financial performance to make informed decisions.

2. Neglect customer feedback

Your customers are the lifeblood of your business, and their feedback is invaluable. Ignoring customer complaints, suggestions, or reviews can damage your reputation and cause you to lose valuable business.

Seek opportunities to communicate with your customers and solicit their feedback openly. The best feedback often arises from informal, relaxed conversations, so ensure your staff are attentive to feedback and ready to relay it to you.

Demonstrate a willingness to address customer concerns and enhance their experience to foster loyalty.

3. Overlook employee development

Your employees are your most valuable asset, and investing in their development is essential for long-term success. Neglecting training, mentorship, and growth opportunities can lead to disengagement, high turnover rates, and decreased productivity.

Look for opportunities to develop your employees and foster a work culture that encourages teamwork and problem-solving.

4. Failing to adapt to market changes

Business constantly evolves, and failure to adapt can quickly lead your business to a dead end. Whether it’s changes in consumer preferences, technological advancements, or regulatory updates, staying ahead of the curve is essential for survival.

Monitor market trends continuously and be prepared to pivot your business strategy to remain relevant and competitive.

5. Micromanaging everything

While wanting to maintain control over every aspect of your business is natural, micromanaging can be counterproductive and stifling. Trust your team to carry out their responsibilities and empower them to make decisions within their areas of expertise.

Delegating tasks and encouraging initiative among your staff will free up time to focus on strategic priorities and scale your business effectively.

6. Ignoring legal and regulatory compliance

Compliance with laws and regulations is non-negotiable for any business. Ignoring legal obligations can result in hefty fines, legal proceedings, and irreparable damage to your reputation.

Stay informed about the laws affecting your industry, seek legal advice when necessary, and implement robust compliance procedures to mitigate risks.

7. Neglecting work-life balance

As a business owner, succumbing to working excessively long hours and neglecting your well-being is easy. However, burnout can have serious consequences for both you and your business.

Prioritise self-care and establish boundaries between your work and personal life. Make time for your family, hobbies, and relaxation, as maintaining a healthy work-life balance is crucial for long-term productivity and happiness.

In conclusion, avoiding these seven common mistakes can help you navigate the challenges of business ownership more effectively and build a resilient, thriving business that withstands the test of time.

Increasing your profit – why it’s not the same as growing sales

The renowned Micawber principle, immortalised by Wilkins Micawber in Charles Dickens’s novel David Copperfield, asserts: “Annual income twenty pounds, annual expenditure nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

This widely cited quote on personal finance is equally applicable to business finance. For any business to succeed and sustain itself over the long term, it must turn a profit, i.e., revenue must surpass costs.

Increasing profit is, therefore, a primary objective for businesses seeking sustainable growth and success. But is enhancing profitability as straightforward as boosting sales?

While increasing turnover (revenue) holds significance, it doesn’t automatically translate to increased profits. Turnover merely reflects the business’s total sales revenue, whereas profitability centres on the relationship between revenue and costs.

A business can augment turnover by merely selling more products or services, but if costs escalate at the same rate or faster, profitability may not improve or could even decline.

So, how can you enhance profits in your business? Consider the following four ways:

1. Get more customers

Acquiring more customers naturally results in higher sales revenue. While this may not inevitably lead to higher profit, it can. An uptick in revenue may help cover fixed costs and enable you to benefit from economies of scale.

For example, expanding the volume of products you manufacture can reduce the average cost per unit of production. This is because some production costs are fixed and do not increase proportionally with output. Consequently, the cost per sale decreases, resulting in higher profits.

2. Sell more to existing customers

Securing new customers typically involves substantial marketing and sales expenses. Conversely, selling to existing customers requires fewer resources and costs due to the established relationship.

By upselling to existing customers, you can generate additional revenue at a lower cost, enhancing profitability.

Existing customers are often more inclined to purchase additional products or services from your business, particularly if they’ve had positive experiences. Therefore, you may have greater flexibility in pricing and bundling products or services to gain higher margins on those additional sales.

3. Raise prices

Many businesses adopt a pricing strategy aimed at undercutting competitors. However, minimising costs to the bare minimum is generally challenging for small businesses to achieve effectively, so a low-price strategy often leads to struggles.

Instead, it is usually preferable to focus on enhancing your offer’s value so that price becomes a secondary consideration.

While you may apprehend losing customers by raising prices, higher prices can convey a sense of premium quality, exclusivity, or value to customers. It also enables you to target more affluent, less price-sensitive customer segments.

4. Reduce expenses

If you can trim expenses without impacting the business’s revenue, this will aid in earning more profit.

Consider negotiating with your suppliers for better prices or discounts. Sometimes, simply asking can save you money.

Additionally, scrutinise all business expenditures – such as rent, electricity, or insurance. Could you shop around for a more affordable insurance plan or endeavour to conserve electricity by turning off unnecessary lights?

Increasing profit does not equate to increasing turnover, but by exploring one of these four areas, you may discover a strategy that enhances your business’s profitability.

Hybrid working – what constitutes a business journey for tax purposes?

HM Revenue and Customs (HMRC) has recently updated its guidance on what qualifies as ordinary commuting and private travel for tax purposes to incorporate hybrid or flexible working arrangements.

Generally, employees work from home as a necessary aspect of their job. In that case, HMRC typically acknowledges that the employee is entitled to tax relief for the expenses incurred when travelling from home to another workplace, such as the office, to perform their job duties.

HMRC usually recognises working from home as a necessary aspect of the job if the facilities required by the employee to carry out their duties are only practically available at their home.

However, if an employer provides suitable facilities at other locations that the employee could practically utilise, or if the employee chooses to work from home, HMRC will not consider working from home a necessary aspect of the job.

To illustrate this, HMRC offers an example: An area sales manager residing in Glasgow oversees the company’s regional sales team across Scotland, but the nearest company office is in Newcastle. As the manager cannot feasibly attend the office and is mandated by her employer to maintain all client information at home securely, she is eligible for tax relief on her expenses for the occasions she travels to the company’s Newcastle office.

Since the onset of COVID and the advancements in communication technology, many employers now offer their employees the option of working from home on a flexible or hybrid basis. Typically, the employees have a designated office base they attend on their work days.

As this flexible working arrangement is voluntary for the employees, they are not obliged to work from home. Consequently, any journeys from home to the office are considered ordinary commuting and do not qualify for tax relief.

Employers must be mindful of this when reimbursing staff using approved mileage rates. They must ensure they do not reimburse expense claims for home-to-office travel for employees who are hybrid workers by their own choice. Otherwise, the payment becomes a benefit and will be subject to tax and national insurance deductions via payroll.

If you or an employee are still determining whether you or they qualify for tax relief on home-to-office journeys, book a free meeting with anytime. We’re here to assist you!

See: HMRC guidance on ordinary commuting and private travel

Financing your business – what should you know?

Expanding a business often necessitates capital. If you lack personal capital or existing business funds, seeking financing from a bank is a viable option.

What types of financing are available? How can you present a request to a bank and ensure its approval? This article aims to address these questions.

Common types of finance

Financing typically falls into three main categories: loans, leases, and hire purchases.

• Banks usually offer loans, which can range from a simple agreed overdraft to a fixed-term loan. Banks often impose requirements, such as securing the borrowing against business or personal assets.
• Leases involve renting an asset for a period rather than owning it outright. While the initial outlay is often lower, leases can be more expensive in the long run when considering the total cost.
• Hire purchase entails a finance company purchasing an asset and then ‘hiring’ it to you. Legal ownership is transferred to you upon completion of the final instalment. Interest rates may be higher than loans, so it’s wise to compare costs.

Comparing interest rates and assessing total ownership costs is crucial. While loans are typically the most economical financing option for businesses, leases or hire purchases may have valid reasons for consideration.

Factors considered by a bank

When evaluating an overdraft or loan application, a bank scrutinises various aspects, including your business background, industry experience, and banking history. They also assess the amount of finance requested, its alignment with your objectives, and whether relevant factors, such as planning applications for property expansion, have been addressed.

Additionally, banks evaluate whether the repayment period matches the asset’s use. For example, a 10-year loan for a laptop is unlikely to be approved.

Banks may adjust interest rates and fees based on perceived lending risks. They may also require regular financial reports, especially with an overdraft.

Demonstrating that you’ve requested an appropriate amount of finance, justified its need, and provided up-to-date accounts and forecasts, including cash flow projections, instils confidence in the bank’s decision to lend.

We have established relationships with local banks and extensive experience assisting clients in securing financing to propel their businesses forward. Feel free to reach out, and we’ll gladly navigate you through the intricacies of financing!

Switch to digital landlines.

Since its decision in 2017, telecom companies across the UK have been upgrading landlines to new digital technology, utilising internet connections. The transition is expected to be completed by December 2025.

The outdated analogue system, the Public Switched Telephone Network (PSTN), has ended its serviceable life. Telecom companies need help in sourcing the necessary parts to sustain it.

The new digital phone lines operate through Voice over Internet Protocol (VoIP) services, requiring users to switch to a VoIP service to maintain their landline connectivity.

The digital connection is anticipated to offer businesses clearer and higher-quality phone calls. Small businesses may also have the opportunity to access faster broadband services than their current analogue lines.

However, there are some considerations to keep in mind. Alarm systems, fax machines, card payment machines, and monitoring equipment connected to your phone line must be checked to ensure compatibility with a digital phone line.

Analogue phone lines also provided a low-voltage power connection, allowing basic corded handsets to function without separate power sources. This functionality will no longer be available with digital phone lines. Consequently, during a power outage, your business may only be able to make landline calls if you have a backup power system.

While you and most employees may rely on mobile phones, your provider must offer a backup solution if your business depends on its landline phone.

In most cases, the migration to digital phone lines is swift and straightforward, typically organised by your landline provider.

See: Ofcom guidance on the future of landline calls