Small Business: managing rising costs

45916986 - businessman with expenses conceptManaging costs is typically a top priority for SME owners, but is cutting expenses that don’t contribute to your bottom line always the right approach?

In 2016, Telegraph.co.uk ran a story stating that the average UK start-up spends £22,756 in its first year on costs relating to incorporation, legal, accounting, HR and general administration; these are the costs to get started. The figure excludes money spent on business-specific activities to maintain its operation because what it takes to run a business varies wildly from company to company. Taking inflation into consideration, the amounts spent by SMEs to get started and to maintain the business are likely to have increased since 2016.

At Tax Agility, our chartered accountants for small business in London have been working relentlessly with clients on how to best manage expenses and take control of business costs. In this article, we aim to discuss the different types of costs and share seven useful tips that can help you become more efficient in managing costs.

What are costs?

In business, the amount you spend that is related to the operation is known as costs. Costs can assume various forms including but not limited to:

  • Fixed costs – these stay the same even if output changes
  • Variable costs – these change according to the output produced or sold
  • Semi-fixed or semi-variable costs – these change when there is a significant change in output
  • Sunk costs – money invested which cannot be recovered
  • Opportunity costs – the difference between a chosen action versus one that is foregone
  • Avoidable costs – items that are not necessary

Putting those technical terms aside, business owners usually see costs associating with equipment, office rent, furniture, office supply, utilities, payroll, inventory, insurance, website (with or without eCommerce), marketing and subsidies (travel & meals), among others. Each of these costs is classified as fixed, variable, semi-fixed/semi-variable and sunk.

To get a good understanding on costs, it is often necessary to perform a cost analysis, an exercise that helps to attribute your expenses to the services you provide or the goods you sell. The aim of cost analysis is to empower you to make well-informed decisions, from how to set prices, know which services are more profitable than others and how to better control expenses in areas that have a lower margin, to name but a few. If you’d like to know more about how cost analysis can benefit you, contact one of our accountants today on 020 8108 0090.

Now, let’s take a look at a few common ways in which you can use to manage your business costs:

Monitor supplier costs

When talking about costs, every aspect of the resources used to produce goods or render services is always worth examining. The first thing most business owners should do is to monitor supplier costs and there are three ways to lower them.

The first is to ask for discounts or discuss what other value-adds they can give, particularly if you have always paid your bills promptly or are ready to sign a multi-year contract with them.

The second is to find other businesses who can share the supplier costs with you. For example, if you run a design agency and you are about to book an exhibition stand, consider partnering with a web consultant and share the costs.

The third option is to investigate a cheaper alternative without compromising on quality. The lowest cost is not always the best value for money, but like you, suppliers also respond to changes in the business market and there are suppliers who can strike a deal with you.

Better time management

William Penn, the founder of the Province of Pennsylvania in 1681 once said that “Time is what we want most, but what we use worst” – a quote that resonates deeply with many business owners who see themselves juggling multiple tasks simultaneously, including tasks that don’t contribute to the bottom line.

Knowing what to prioritise, when to let go, and how to delegate are valuable lessons which can help to restore balance and allow you to focus on things that are of the utmost importance.

One time-management technique that is widely used by entrepreneurs is to allocate a limited period for each task and block out all distractions while you are focusing on the specific task. Outsourcing is another proven approach to help combat costs and you can get some inspiration from our post “Hiring specialist contractors can reduce SME costs”.

Use space more effectively

An advantage of owning and running a small business is that you can be highly creative when it comes to office space and lower your rent and utilities. For example, if your current office is big because it needs to accommodate piles of documents that don’t require constant access, consider digitising them or putting them in storage as the cost of storage is usually cheaper.

Many entrepreneurs also opt to be home-based or use co-working spaces. Co-working spaces definitely deserve special mention as you get to meet freelancers and other business owners working on a wide variety of projects, which often leads to valuable partnerships.

Switch to the cloud

Forget about expensive servers and rigid hard drives that take up space, require dedicated maintenance and consume much power; reduce your IT and energy costs by switching to the cloud instead.

Cloud computing allows you to set-up a virtual office which in turn enables you and your team members to share files and communicate from different locations. It is also scalable – with Google Drive, for example, you can opt for 100GB, 200GB, 2TB and 10TB or more depending on your business needs.

If you’re looking for a good cloud accounting software, we’d recommend Xero; you can follow this link if you’d like to know more about Xero and how it can help to organise your business account and finance.

Make the most of software and apps

Apart from switching to cloud computing, there is a world of disruptive technology at your fingertips too. One tangible advantage that many SMEs can see is using peer-to-peer services like TransferWise to cut bank charges and achieve a better exchange rate when you need to transfer money abroad.

When it comes to meetings, focus on the substance of the conversation and let the AI-powered app Otter help you with note-taking – this app can transcribe voice conversations into rich notes with text, audio and images; it even has a function which allows you to search for key phrases. When it comes to boosting business efficiency, let project management software like Slack or Trello help you and your team to collaborate better and minimise downtime, thereby lowering your overhead costs.

Focus on quality

Improving quality is a tried and tested approach that leads to lower costs among manufacturers and it makes sense; fewer errors on the assembly lines means less wastage and increased output, which in turn attracts more customers and lowers the risk of lost business, negative public relations or even litigation.

Should business owners who provide professional services care about quality too? Absolutely, because quality is often a crucial differentiator in a crowded market. With competitions abound, you can’t just meet your customers’ expectation; you need to exceed it. The way quality can help to lower your cost, we will argue, is through customer retention as it is a known fact that you will spend more money to acquire new customers than to retain the existing ones.

Increase tax efficiency

The UK tax system can be complicated, especially if you have your hands full managing various areas of your business. To keep abreast of the latest tax incentives or meet HMRC deadlines, rely on our expert chartered accountants instead. With us handling your tax responsibilities, you can put your energy into increasing your profits and growing your business.

Accountants can help you control your costs

Our small business accountants in London are here to help you minimise tax and maximise efficiency. With our accounting advice, you can save yourself time and money – and put your business first. All businesses are unique, and so are our specialised services. If you would like to arrange a one-to-one meeting to discuss your business and any tax queries you might have, we offer a no-obligation, free consultation.

Contact us today on 020 8108 0090 or get in touch with us via our Contact Page.

This article was first published in 2016 and has been updated on 31/07/19.

If you found this helpful, take a look at:

This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.

by Donovan

Businessman turnimg tap - coins are falling out

Five ways to improve your company’s cash flow

Businessman turnimg tap - coins are falling out Owning a business is undoubtedly a rewarding experience – it allows you to set your goals and create tremendous financial opportunities, but it can also keep you awake at night especially if cash flow becomes an issue.

As experienced chartered accountants working with SMEs across London, we understand very well some of the trials you face when running your business. To protect your investment and maximise your business’s potential, it is essential that you have the right support and advice when it comes to tackling some of the challenges so you and your business can come out stronger. For the purposes of this article, we aim to discuss issues pertaining to cash flow and how to better manage it.

What is cash flow?

Cash flow is the total amount of money going into and coming out of a business. At any one time, your business should have more money coming in to cover everything that needs to be paid out. If the cash outflows are more than the cash inflows, then you have something called a cash flow gap – most businesses address this gap by relying on overdrafts to help them meet the obligations.

The good news is, cash flow is something that you can plan and control in advance with some guidance, meaning you can actually avoid cash flow gaps and maintain healthy business growth. Now let’s take a look at five tried and trusted methods to improve cash flow.

1. Always collect debts promptly

When it comes to collecting overdue money, many SME owners know the pain too well. According to research by Bacs Payment Schemes Limited in December 2018, more than a third of SMEs wait two months beyond agreed terms to be paid, making late payment a serious threat to the survival of SMEs.

To overcome this, it is crucial that you let your customers know your payment terms before both parties agree to work together. If you are offering a professional service, ask for part payment up-front and tie the remaining balance to each milestone, and make it clear that you won’t start the next phase unless the previous invoice is settled.

As soon as you become aware that certain clients still fail to pay despite knowing the payment terms, following up with phone calls and reissuing invoices will usually do the trick. If it becomes apparent that they don’t attempt the settle the payment soon, then it may be worthwhile to consider a debt-collecting agency. Speed is key to debt recovery – the longer you wait, chances are the more resources and effort will be required to recover payments.

2. Use an invoice template and accept multiple forms of payment

Although simple in theory, many SMEs neglect to make the payment process easier for their customers. Invoices addressing to the wrong customer, having an incorrect address or failing to include the issuing date and adequate bank details are common occurrences. One of our customers shared a story in which they tried for six months to get a vendor to issue a correct invoice – this may seem bizarre to those who keep a watchful eye on your accounts, but similar stories do happen daily due to all sorts of reasons. If you have already made use of an invoice template and the issue is largely because you lack a dedicated staff to properly manage this process, then consider outsourcing it.

For payment between businesses (B2B), bank transfer is the most common payment method and other payment methods like credit card, direct debit and Paypal are less so. Direct debit certainly deserves special mention as it reassures business owners that payments will come on time, so opting to accept direct debit and other forms of payment can help to cut down debt and maintain healthy cash flow.

3. Create accurate cash flow projections

It is essential for the longevity of your business to create accurate cash flow projections – an estimate of money you expect to flow in and out of your business, including all projected income and expenses. A cash flow forecast usually covers a year but you can also design it to cover a shorter period.

At Tax Agility, our small business accountants are experts in cash flow forecasts and we can help you to plan for multiple scenarios, accurately factor in fixed and variable costs, consider seasonality that may affect your business and put in place contingency plans, to name but a few.

An accurate cash flow forecast is invaluable because it gives you the visibility that you need to stay in control. For example, you know that you have to settle a major expense at the beginning of January and your clients are likely to miss payments in December due to the holiday season, then you can take pre-emptive actions like offering discounts to clients if they pay before the due dates, arrange for a short-term facility, or opt for invoice factoring (selling the invoices to a financial company at a discount for immediate cash injection).

4. Review your overheads

Business overheads are expenses that are related to the day-to-day running of your business and they do not correlate to a product sale or service. Overheads can include fixed monthly or annual costs, such as insurance, salaries and leases, or expenses that differ every month – repairs to your business’s building or advertising.

Typical overheads include:

  • Utilities – gas, water and electricity
  • Rent – the lease costs of the business premise
  • Administrative – salaries and office supplies
  • Insurance - which can include Property Insurance of General Liability Insurance
  • Maintenance and repair

By putting the overhead figures down in your cash flow forecast, you can see which areas (or when) you can cut down expenses or consider a cheaper alternative. In our post “Hiring specialist contractors can reduce SME costs”, we share good tips on how SMEs can optimise the use of resources and achieve maximum customer value, so follow the link to read more if you’d like.

5. Use an exceptional online accounting software

To stay on top of your finances, ditch cumbersome spreadsheets and opt for an easy-to-use online accounting software like Xero. Cloud-based accounting software Xero is built for small business owners who don’t necessarily possess a good level of accounting knowledge as its user-friendly interface makes it easy to understand key financial information.

The cash flow statement in Xero contains three useful sections:

  • Cash flows from operating activities such as salaries paid to employees, payment received from customers etc.
  • Cash flows from investing activities such as new office equipment or the sale of assets.
  • Cash flows from financial activities such as loan repayments, money invested in a business or money taken out by directors.

Xero allows you to customise the layout of your cash flow statement by dragging and dropping items on the interface, as well as showing more granular information like where you have spent cash. To make the most of it, it is best to discuss the cash flow statement with one of our chartered accountants so you can continue to make informed decisions.

Follow the link if you’d like to know more about Xero and how it can help to organise your business account and finance.

Tailored advice to improve your company cash flow

At Tax Agility, our small business accountants have built a strong reputation helping SMEs across London to build a robust set of business fundamentals including managing cash flow and using it to their advantages. If you’d like to know more about cash flow, tax and accounting matters, as well as statutory compliance, get in touch today on 020 8108 0090 or via our contact page to arrange a complimentary, no-obligation meeting.

This article was updated on 24/07/19

If you found this helpful, take a look at:

This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.

by Donovan

7 key steps to growing a business online

Growing a business online

The internet has provided an immense opportunity for almost everyone to set-up and run a business online, but how do you set yourself apart and grow your online business sustainably?

As an accounting firm in London working with many SMEs, we have witnessed the tremendous opportunities that the internet has provided for our clients. It isn’t just a young person’s playground either – the assumption that only young entrepreneurs are making a name for themselves with successful web-based businesses isn’t true – there are many mature entrepreneurs behind successful web ventures too.

But what does it really take to build a successful online business? It may be safe to assume that many of you do not aim to be the next Mark Zuckerberg or Jeff Bezos, instead you are just looking to make your online business a little more successful, considering 56.1% of the world’s population has internet access and potentially they can all reach you. Furthermore, there were 1.8 billion online shoppers across the globe in 2018 according to Statista.com and a large percentage of them might be your target audience depending on what you do and sell. In terms of global e-retail sales, the figures were equally staggering – coming in at US$2.8 trillion in 2018 and are expected to reach US$4.8 trillion in two years. So to be successful online, we are talking about having the ability to attract more new clients from near and far to your website and turn them into buying customers.

It is with this in mind that we want to share tips that we have learnt from successful online entrepreneurs who use them to grow their business online.

1. Passion versus good business

For many people, the first step into the world of online business is through a passion or a hobby – something they enjoy doing becomes something they ‘could’ make money at. But in reality, passion doesn’t always mean good business.

To make your online business a success, you’d need to invest time and effort in research and know your audience first. Then you need to produce a solid business plan detailing:

  • How do you describe your business?
  • What is the goal?
  • How do you plan to sell your products or services?
  • Who do you want to sell to?
  • Why should they buy from you?
  • How much do you plan to invest?
  • How much will it cost you to produce the products (if applicable)?
  • How long does it take to produce?
  • How do you plan to reach your audience?
  • How do you plan to fulfil orders?
  • How much do you plan to make?
  • What is your business forecast?

Most people focus on profits but taking control of business costs is imperative. Cash flow is another area that requires dedicated attention. Referring to the amount of money going into and coming out of a business, cash flow is the life force of a healthy business.

Turning your passion into a business requires practical guidance from like-minded entrepreneurs. So if you need assistance pertaining to your business plan and cash flow, speak to one of our chartered accountants for small business today.

2. Give your online presence an upgrade

We’d be remiss in not talking about ‘online presence’. What does that even mean? Well, similar to its sibling ‘brand presence’, online presence is all about how your business appears to others online.

Many SMEs developed their website years ago and haven’t given it much thought since then. Chances are, the dated look and feel will not instil confidence in your audience. If your website still has a 90s look, then it is time to give it an update, build a conversion funnel, perform A/B testing, and even refresh your content.

In this day and age, having a responsive site is a given because in 2018, 52.5% of website traffic worldwide was generated through mobile phones according to statista.com. Using good images to showcase your products is also a given. If using a professional photographer is not in your budget, consider buying stock photos.

3. Make your online presence about your customers

A website can be a great place to talk about your company and get across all of your great points, your accreditations and why you’re so brilliant. But when a website tips too far in the direction of self-congratulations, you can start to lose sight of the purpose for your website: the customers.

Regardless if your customer comes to your site to buy a pair of shoes, look for holiday ideas, or seek out a plumbing service they urgently need, they only give your website a couple of seconds to reassure them that you can address the issues they look to solve and meet their needs.

Website visitors are notoriously impatient and will go elsewhere if you don’t provide the right information on the right pages. So make your website about what your customers want from your business – not what you want to tell them about your business.

4. But don’t be afraid to show who you are (at the right time)

We did just say in the previous point that the website should be about the customers, but it doesn’t mean they don’t want to know who they are buying a product or service from – it just needs to be in the right place and at the right time, meaning when they choose to find out who you are, they can get the information easily.

An ‘About Us’ page is the best place to tell a customer all about your business and establish the ‘trust’ between you and them. Tell them what sets you apart from your competitors, what are the values and principles driving your business, who is the person behind the business, what are your qualifications and credentials, to name but a few. If you have logos and certifications from trusted trade bodies and consumer watchdogs, display them prominently throughout the site too.

On product or service pages, you can also make use of icons or accordions (a vertically stacked list of items) to show information that can help to build trust between you and your customers.

5. Think landing pages

If you use Google Analytics, chances are you may see that most of your visitors don’t necessarily land on your home page and then use the menu bar to locate subpages.

For a large number of product and service sites, your potential customers come to a landing page first – landing pages are mini portals pertaining to a group of products or services and they usually funnel organic traffic to the right product or service page.

It must be said that landing pages need not just be directly offering products and services – they can also be offering an answer to a question that a potential customer is typing into their search engine of choice. So if a potential customer is asking a question about something that you provide, you want to be the one that answers their question to their satisfaction.

If you’d like to know more about landing pages and how you can make your website work smarter for you, follow the link to our Better Business page.

6. Social media

Many businesses are on social media, but not everyone can comfortably say that social media has been generating sales for them.

Social media is a catch-all term for a variety of apps and websites that serve the purpose of, essentially, allowing people to connect with another in a variety of ways. Every platform is different and each one has its own strengths and weaknesses.

Some of these platforms allow you to build brand awareness and communicate products or services to potential customers (such as Facebook or Twitter), while others can allow you to communicate directly with customers in a modern way (such as WhatsApp or Snapchat), can act as a business registry (such as Yelp) or can help you connect to other businesses and influencers (such as LinkedIn).

Finding out which platform works for you requires research and analysis. Although there isn’t a one-size-fits-all approach, the shared commonality among them is they are platforms for you to build relationships with prospects and existing customers. These two words – build relationships – indicate time and effort, which means investment, so it pays to work out how much you want to invest and for how long. Also, like everything else, be mindful that social media is a tool and not a solution to growing your business online.

In our article “How to grow your business: social media”, we share the advantages and disadvantages of social media, as well as tips to grow your business on social media; follow the link and give it a read if you are interested in this subject.

7. Make use of ‘traditional’ media

While social media is on everyone’s radar, don’t ignore traditional media either – yes you heard that right. The thing is, over the years there has been a shift in the world of media – we are seeing more and more local or regional news portals springing up online – thanks to the accessibility and low financial barriers that allow local, citizen journalism to flourish. Many of these news portals are after community-based stories that could intrigue their readers.

Supporting these media outlets and community-based stories are often a good way to get the name of your business out there locally or regionally. At a time when internet boosts trading opportunities across borders, connecting with your local audience and building a strong community presence is more important than ever. This is because the local residents know that when they purchase from you, their money will be circulating locally and thereby allowing the local community to thrive. Moreover, because you are local, you may offer a genuine customer experience that other online giants may not have.

Tax Agility can help small businesses in London

At Tax Agility, we work with small business owners across London helping them to get their financial matters in order so they can focus on growing their business, online and offline. If you want an accountant who truly understands your small business, contact us today on 020 8108 0090 or get in touch via our contact us page to arrange a complimentary, no-obligation meeting.

Our areas of services include:

When it comes to business growth, one thing to bear in mind is that there is no silver bullet and every business is unique. Also, change is a constant in the world of business. Online customers are particularly fickle, technologies are changing all the time, as are search engines and the way people use social media. Hence, it pays to stay lean and agile, so you can adapt quickly.

Best of luck to your online business.

If you found this helpful, take a look at:

This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.

by Donovan

Everything you need to know about corporate tax

While corporate tax may seem overwhelming, particularly if it’s new to you, it really pays to know how it works and what you can do to lower your tax bill legitimately.

Corporation tax is something that most businesses and organisations need to pay; and the most prevalent of which are limited companies. However, it also applies to foreign companies with UK branches, as well as co-operatives, clubs or other unincorporated associations (such as sports clubs, community groups or voluntary groups).

At Tax Agility, our tax accountants have been working with SMEs across London on tax issues pertaining to small businesses. In this article, we hope to explain corporate tax in an easy-to-understand manner so you can fully understand corporate tax.

What is corporation tax?

One of the best ways to conceptualise corporate tax is that it is just like income tax – except it’s for companies. As soon as your company starts making a profit, you need to start paying corporate tax.

The term profit here encompasses money earned from:

  • Doing business (trading profits)
  • Investments
  • Selling assets and making chargeable gains, these can include land, property, machinery, equipment and shares in the company

If your company is based in the UK, then it pays corporate tax on all of its profits derived from domestic and abroad.

If your company is based elsewhere but has an office here, then it only pays corporate tax on profits derived from its UK activities.

While registered charities are generally exempt from corporate tax, they do pay tax on money that is not used for charitable purposes (aka non-charitable expenditure), as well as on dividends received from UK companies before 6 April 2016, profits from developing land or property and purchases (although special VAT rules apply). Charities also pay business rates on commercial buildings which are a form of tax, although they get an 80% discount.

Corporate tax rates

Corporate tax rates are standardised across all businesses at 19% for 2018-2019 and 17% for 2019-2020. That means that for a business that has an annual profit of £100,000 for 2018-2019, they’ll have to pay £19,000 in corporation tax. From 2019-2020, that figure would be £17,000 in corporation tax from the same annual profit of £100,000.

While there are no plans for this to yet change after these dates, the government has shown a commitment to keeping the rate at 20% or lower. Also, given the current political situation, we may see the rates drop even further to boost growth and drive foreign investment.

When is the corporate tax due?

Corporation tax has to be paid before the company tax return is filled and the exact date will depend upon a company’s corporation tax accountancy period and the size of taxable profits.

For example, your accounting period ends on 31st March and the taxable profits are less than £1.5 million. Accordingly, you must pay your corporate tax nine months and a day after your accounting period ends.

However, it’s worth noting that if your small business has just been started, then you may cross two accounting periods for corporation tax as your accounting period can’t be longer than 12 months. Talk to your accountant and they should be able to help with any corporate tax enquiries. Alternatively, you can call us too.

If your taxable profit is more than £1.5 million, then you must pay corporate tax in instalments electronically.

Lastly, even if your company is loss-making, you still need to declare it with the HMRC – even if there is no corporation tax due.

Registering for corporation tax

When you are first setting up a small business, your accountant generally helps you with the process of registering for corporate tax. If you haven’t worked with an accountant, then you can start the process by visiting the gov.uk website and register within three months of your company beginning to ‘trade’.

The term ‘trade’, and when your company is viewed to have begun trading, is defined as when your business buys, sells, rents property, advertises or employs someone. As soon as your business has performed one of these actions, then the three-month countdown begins, which is why it is imperative that you register for corporate tax right away.

Reducing your bill through allowances and reliefs

Small businesses across the UK can lower their corporate tax bills legitimately by claiming allowances and reliefs. Again, this is something where your tax accountants can assist or call us on 020 8108 0090 if you are in need of a trusted independent small business accountant in London.

Capital allowance allows you to deduct some or all of the value of the assets used in business from your profits before you pay tax. These assets include equipment, machinery, cars, vans and lorries that are used for business.

You can also deduct the following costs (as part of the business costs of your limited company):

  • Day-to-day running costs
  • Items that you buy and sell
  • Interest payments or financial costs for buying assets

In terms of reliefs, they are:

  • Research and development (R&D) relief if your company works on innovative tech and/or science projects.
  • Creative industries (CITR) relief for film, TV, video game and other creative companies for larger deductions when calculating profit to be taxed.
  • Disincorporation relief allows a company to transfer assets to shareholders without a corporation tax charge on assets (often occurring when companies turn from limited companies to partnerships or sole traders).
  • Marginal relief is available to companies that have between £300,000 and £1.5 million in profits before certain tax years.
  • The Patent Box sees to it that profitable, patented inventions (and some other inventions) are taxed at a lower rate of corporation tax.
  • Terminal, capital and property income losses.
  • Trading losses.

Please note that anything you or your employees use and get something from must be treated as a benefit and not a relief to be deducted from profits before tax. Only expenses that are ‘wholly and exclusively’ for the purpose of the business can be deducted. In addition, there are some costs that aren’t allowed – such as the entertainment of clients.

Bonus tips

It’s worth mentioning here that to fully take advantage of the corporate tax system, you, the business owner, should pay yourself a salary which will reduce your profits and your corporate tax obligation accordingly.

If you are paying yourself a low salary on purpose and you use dividends to make up the majority of your income, then you would know that dividends are drawn directly from profit and are subject to a different (lower) tax rate than salaries which are drawn before profits. To find out which approach works best for your situation, it is best discussing this with a professional accountant first.

Another thing worth knowing is that if you pay HMRC your tax bill a bit early, you’ll actually get some of it back in the form of interest – meaning you can actually save money being nice to the taxman. The earliest HMRC will pay interest from is six months and 13 days after the start of your accounting period.

When in doubt, get a professional to account

As a business owner, you are juggling multiple tasks and worrying about HMRC deadlines and if you have missed any reliefs should not be your top priority. Instead, your accountant should be working on them for you, helping you to maximise your income and lower your corporate tax bill legitimately.

Talk to Tax Agility today, our team of chartered accountants work with small business owners across London saving them time and money. Our full range of services include:

Contact us today on 020 8108 0090 or get in touch via our contact us page to arrange a complimentary, no obligation meeting.

If you found this interesting, check out:

This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.

by Donovan

Hiring specialist contractors can reduce SME costs

To thrive in the contemporary business ecosystem, SMEs need to optimise the use of resources and achieve maximum customer value.

Being lean in every business process gives SMEs the ability to compete and deliver outstanding value in an ever-changing economic environment. The term ‘lean’ was first used by MIT researchers to describe Toyota in the late 1980s on how they eliminated waste and inefficiency. Since then, every wise business owner – be it a CEO of a large-scale manufacturer in India, a specialist healthcare provider in New York or a business owner with 10 employees in London – aims to optimise every business process, thereby enabling the company to grow in a structured, disciplined way.

For a small business owner, being lean requires you to think differently, plus taking a critical look at your operations and finding ways to eliminate inefficiency, in everything from your office facilities, labour costs to marketing strategies, to name but a few.

As labour costs typically account for 20% to 35% of expenses in a small business (and could be up to 50% if you’re a service-based company), staffing is an area which many small business owners want to optimise. So in this article, our local small business accountants in London aim to discuss ways in which hiring specialist contractors may be more efficient than hiring an employee on a full-time basis, which in turn may lower operating costs for SMEs and start-ups.

What is a contractor?

Recently we have optimised our contractor pages and published a series of posts relating to contractors. For the purpose of this article, we want to outline what a contractor is with respect to business before getting into how they may be able to assist with reducing your company’s operating costs.

Simply put, a contractor, often referred to as a freelancer or a consultant, is an individual who supplies a service for a company on a short-term or a project basis. A contractor works outside of the normal employer-employee paradigm, meaning they work for themselves (as self-employed, usually through a Limited Company) and they supply a service to a ‘client’, the company that has enlisted their services.

There are many complexities surrounding contracting, particularly with respect to the Government’s IR35 legislation which dictates the terms under which a contractor can supply his/her contractor services to a client and vice versa (the conditions under which the business owners can enlist their services).

Benefits of hiring an independent contractor

In circumstances where you, the business owner, are able to legitimately employ a contractor on a short-term contract, this can be incredibly beneficial with respect to the level of expertise they may be able to bring to your company, as well as being a cost-efficient way to employ this expertise. The four main benefits of hiring a contractor for an SME are:

1. Cheaper workforce

In the UK, the true costs of hiring a full-time employee can be substantial if factoring in National Insurance Contributions, pension, benefits (sick pay, holiday pay among others), private medical, insurance and office facilities. Hiring a contractor means your company only pays an agreed fee to the contractor.

2. Niche areas

For many small business owners, areas of expertise such as web development, copywriting, database management and cybersecurity measures are best left to specialists who know what they are doing (unless your business is based around these disciplines). As it is unlikely that you would require these specialists permanently, hiring a contractor only when necessary will save you money.

3. Flexibility

Hiring a contractor gives you greater flexibility, one that you can’t achieve with a full-time employee. For example, you can require the contractor to come periodically depending on your needs. In most circumstances, you can also terminate the contract with short notice without giving a reason. With flexibility comes the ability to adapt quicker, for instance you can respond to market changes by increasing or decreasing your staff number.

4. Reduced liability

Businesses are required to have employers’ liability insurance which protects you against the cost of compensation claims from your employees due to a workplace-related illness or injury. Contractors usually have their own insurance which covers them should the unforeseen happen.

Tax Agility can help SMEs to reduce costs

At Tax Agility, we are small business accountants that deliver more to our clients across London, helping them on accounting and tax-related services including:

  • Accounting and bookkeeping: helping you to manage day-to-day financial tasks.
  • Payroll: outsourcing this function to us can help your business eliminating inefficiency.
  • Tax planning: lowering your tax obligations legitimately.
  • VAT: improving cash-flow and preparing returns and reconciliation.
  • Management consultancy: working with you to put an actionable plan in place and set your business on the growth path.

To speak with a professional SME accountant or to discuss how we can ensure your finances are always up to date and in order, contact us today on 020 8108 0090 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.

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This post is intended to provide information of general interest about current business/ accounting issues. It should not replace professional advice tailored to your specific circumstances.

by Donovan