If you are a business owner, then knowing what your gross and net profits are will be vital to your business. Whilst net profit shows how much money you made overall, knowing what your gross profits are in relations to them can help you form a better business strategy.

In a nutshell, gross profits are your turnover, minus the costs of the goods sold. This includes products, materials, shipping costs etc.

Your net profit is your gross profit minus all the other costs associated with running your business, such as salaries, rent, taxes, insurance, utilities etc.

Knowing what your net profit is at any given time will give you an indication of how much money your company has to reinvest in the business or distribute to shareholders… or alternatively how much you need to pull your socks up!

How to use net and gross to help your business succeed

The net profit alone doesn’t necessarily show the truth of how well your company is doing, and that’s where knowing what your gross profits are coming in handy. You may, for instance, have moved to larger premises or have had a recruitment drive for staff to handle an anticipated rise in work, in which case your net profits will have taken a hit. However, if your gross profits are good, you can attribute the downturn in net profits to the expenses incurred in the move and be confident that you’re still on the right track in business terms. Alternatively, high gross profits and low net profits will tell you that even though your core business is strong, you need to investigate where you’re spending the excess money enabling you to do something about it.  

We find that, as a general rule of thumb, if you are looking after your overheads properly, the net profit should take care of itself. There’s a great phrase, “turnover is vanity, profit is sanity but cash is reality”, which means you need to get your profit right before taking care of your working capital.

If you are looking for a Hertfordshire accountant, please contact us to find out more about the services we offer.

You may have used the same accountant for a number of years, and you may well be happy with them – we hope you are! But it’s always a very useful exercise to review your accountant from time-to-time just to check that you’re getting the most appropriate service for your business.

When you do your review, it encourages you to think about the service you’re getting and assess whether or not you’re getting what you need from your accountant. Here are the questions we think you need to ask yourself in order to make an informed assessment.

Are they technically strong?

Are you getting a high enough technical service, particularly on the tax side of things? As your needs get more complex, do you feel that they are on top of what they need to be doing?

Are you happy with the way they communicate?

Does your current accountant communicate clearly with you so you understand the information clearly? How much jargon do they use? How approachable are they? Do you feel you can contact them when you have a question? A good accountant isn’t just an expert at what they do, it’s all about getting a good service, and dealing with you on a personal level is a very important part of this service.

How proactive are they?

Do you ever have to chase your accountant to get things done? Are they always dealing with things late and scrambling to meet deadlines or do they get things done in a timely manner? A good accountant will plan ahead and make sure everything’s properly scheduled. As issues are about to come up, they will tell you they are dealing with them, rather than waiting for you to have to prompt them when you receive a notification after the deadline has gone.

Do they give you practical solutions to problems?

The relationship between you and your accountant works both ways – if you’re getting a good quality service, they will be proactive and suggest practical solutions to any problems you might encounter. A good accountant will be happy to work through things with you to make sure that everything is on the right path.

Are they at the right level?

Do you feel that your accountant is experienced enough to handle your accounts? It may well be that you started working with them when your business was small, but your company has seen great growth. You need to ask yourself if your accountant has grown at the same rate because, with the best will in the world, their skills might not be enough for your needs as a larger company any more.

If you’re happy with the answers to all these questions, then you’ve got the right accountant for your needs, along with the peace of mind this brings. If not, then contact them to discuss your concerns, after which, if you’re still not sure, it may be time to look for a new accountancy service. Contact us for more information or to see how we could help you turn those unsure questions into informed decisions.

Until recently, an HMRC investigation usually meant one of two things. Either someone, possibly disgruntled business partner or spurned spouse, had tipped off the taxman or you were unlucky enough to have had your tax return picked at random.

All that changed with the advent of HMRC Connect, an £80m software system designed to join billions of dots to create a picture of who may not be entirely honest when it comes to assessing their tax liabilities. 

HMRC Connect obtains data from different sources including other government databases such as the Land Registry, DVLA and private sector financial information from credit card issuers and companies such as eBay, PayPal and Airbnb.

Years ago, inspectors and their assistants would take loads and loads of time manually cross-checking all of that information and then comparing it to the returns that came in from taxpayers to determine whether or not there was a risk those taxpayers were not paying the full amount of tax.

Nowadays that cross-checking takes practically no time at all, the preliminary work is done in seconds. What that does is to see if there are anomalies in the information that they’ve got from different places that flag up there is a risk on the taxpayer. The risk department then identifies those with highest risk and then investigates those people.

It quickly establishes links that enable experts to identify suspicious businesses, individuals and transactions for further investigation. It allows HMRC to see more information in one place for a single taxpayer and has the capacity to find anomalies between information such as bank interest, property income and other lifestyle indicators and compare it to what a customer is paying us in tax. Manually interrogating such data would take weeks or even months.

Whilst being extremely happy with Connect’s impressive successes date, HMRC is keen to develop the system further, particularly when it comes to reducing the burden on its staff. ‘Connect is not the sole deciding factor in beginning or deciding the direction of a tax investigation, it is simply a powerful tool that enable lots of different data sources to be brought together that will inform an overall picture. Other factors are brought in, including human insight to make the final judgement’ HMRC says.

Another opportunity for Connect is to use its capabilities for pre-fill tax returns based on data already known about the individual. By confronting taxpayers with information that they are merely asked to check and confirm, HMRC hopes to significantly reduce fraud and increase the tax take, and no doubt the rollout of mandatory Making Tax Digital will be a trigger for even more compliance activity as digital data pours in.

Doing the payroll is more than just having the bank account details of the people you employ and making sure they’re paid what they’re owed on a regular basis.

Meeting legal requirements is a huge part of the payroll process and the recent introduction of GDPR has made things more complex for most companies when it comes to record keeping, requiring them to protect their data securely and prevent unauthorised access, especially when it comes to transferring sensitive personal information.

Confidentiality

Some companies are a bit nervous about keeping employees’ personal data onsite. In which case, outsourcing payroll to an accountancy firm is a good solution which means records will be completely inaccessible to your own staff.

Digital security

Outsourcing your payroll will also have advantages in that your accountancy company should already have robust security practices in place in order to properly encrypt your data. If this is the case, then GDPR will not have made much impact on their cybersecurity provision as it was already good enough. The difference that GDPR will make to your payroll system is that, as the new standard of security practices to protect us all as individuals, you can rest assured everyone’s data is in safe hands.

Other advantages

Apart from security, there are a number of other advantages of outsourcing your payroll to a specialist accountant. You will be benefiting from their training and expertise in their specialist subject, meaning they’re less likely to make errors in their calculations at the same time as ensuring you and your staff get all the tax breaks they are entitled to. The lack of errors may also save you money – if you do your own payroll and get it wrong, you may lose money or have to spend it in order to put things right.

You will also be able to spend more of your own time on running your company. Most entrepreneurs just want to follow their passion which, let’s face it, rarely involves anything to do with taxes! The accounts and payroll are therefore a drain on their time, and the pressure to do them right is a drain on their mental energy. Yet there are plenty of accountancy experts out there whose passion is accounting, so why not let them do what they do best while you concentrate on what you do best and concentrate your efforts on running the business.

Contact us for more information on how we can help you or call us on 01992 444466.