Either way the coming months will bring many businesses their biggest challenges
Welcome to this first issue of the new style Lyness Accountancy Practice Limited Newsletter which we hope finds you, your family and your friends safe and well because right now in these strange times that remains the most important thing for all of us.
Having said that this is possibly one of the most challenging times there has ever been for business, having lived through and endured months of lockdown and further restrictions while potentially facing even more.
Many of our clients are familiar with business guru Michael E. Gerber, author of the best selling book The E-Myth Revisited who taught us the importance to business owners of working on your business and not just in it, spending time on things like business planning and strategy, building the best business possible.
And much as that’s always been the case it’s probably never been more so than now whether you’re fighting to survive or thrive.
Your planning might be shorter term right now due to the pandemic but you absolutely need to be asking yourself how you’re going to get through the next few months, what it will take, how your cash flow is going to look?
Start that journey overleaf by understanding how the rule of 7 can drive your business forward.
THE RULE OF SEVEN
7 Key Numbers to Business Success
And as accountants we have analysed and prepared thousands of set of accounts and in doing so we’ve discovered even though they may all be different there are just 7 key numbers all should be monitoring, and that has led us to the Rule of 7.
Every business owner believes their businesses are different, yet all providing a product or service and ultimately looking to make a profit.
There is nothing magical or mystical about these 7 numbers but you’ll find when you start to drill into the numbers they will really impact your business.
The Rule of 7
So what are the numbers we should focus on if we want to make a difference to our future success?
- Revenue Growth (sales)
- Gross Profit
- Revenue per employee
- Core Cash Target
- Cash Days
- Business Return (ROCE)
Exactly as it sounds, the revenue this year compared to last to look for the growth YOU want. Revenue is a good indicator of a growing business.
Is your business returning good profit from its main activities, the costs you incur to make sales and deliver your service or goods?
Not as complex as it sounds, EBITDA is earnings before interest, tax, depreciation and amortisation. Stripping out those costs and looking at your profit in line with your revenue is another good indicator making sure your percentage is in line with where you want your business to be.
REVENUE PER EMPLOYEE
A great number to assess your business comparing revenue to employee costs which can then lea to capacity, productivity and efficiency issues.
CORE CASH TARGET
The core cash the company should have in reserve before starting new projects or paying additional dividends. What taxes are due, what element of overhead buffer do you need? Cash beyond this is your surplus.
Also known as working capital days, and is calculated from a combination of accounts receivable and payable days plus the time to turn stock and work in progress into cash.
A multitude of numbers telling you how long it takes for money to go through your business.
Simply what is your business worth based upon it’s current profit. Is the business producing a good enough return?
RESEARCH & DEVELOPMENT TAX CREDITS:
Do you Qualify? But Beware the Cowboys!
As a business owner the chances are you will have been contacted about Research & Development Tax Credits.
But beware there are countless consultants claiming to be able to instigate claims worth thousands of pounds who approach you with sales driven methods promising refunds through what are unrealistic claims.
So what are Research and Development Tax Credits and do they work?
In the right circumstances Research and Development Tax Credits are an excellent form of tax planning that can generate huge tax refunds.
R&D Tax Credits are a tax break that allow you to reclaim up to 33% of your R&D costs whether or not the project was a success.
The money is usually paid as a corporation tax refund after the end of the financial year.
If your company takes a risk by innovating, improving or developing a process, product or service then it could potentially be in a position to make an R&D tax Credit clam.
When your project team began the project were they facing uncertainty as to the outcome they would achieve in that they didn’t know at the outset whether a particular outcome was achievable?
If you can show that your project goes beyond simply applying existing technologies then you may be able to make a claim.
HMRC guidance says that R&D for tax purposes take place when a project seeks to achieve an advance in science and technology.
The activities which directly contribute to that advance science or technology as well as certain indirect activities through the resolution of scientific or technological uncertainty are R&D.
An advance in science or technology means an advance in overall knowledge or capability in a field of science and technology and not just the company’s own state of knowledge and capability alone.
SME businesses are able to claim up to 33p in every £1 spent on qualifying R&D activities and in 2017-18 the average claim was £53,714 so it is well worth exploring the opportunity.
Bu with so many businesses making false claims you need to choose who you work with carefully.
Indeed, Taxation Magazine, a publication for tax professionals recently published an article on the concern that the market was being flooded by rogue boutiques offering R&D services.
Historically HMRC have often put claims through without too much in-depth review but this is starting to change and you need to be confident your project really does fall under R&D.
That’s why we at Lyness Accountancy Practice Limited have developed a relationship with a company who:
- Have over 30 years experience managing R&D tax incentives across a variety of industries and sectors.
- Have a broad range of international clients including some of the world’s best known brands.
- Can help if you’re currently claiming or want to explore whether you should be.
If you think you have a project that could qualify as R&D talk to us to set up a FREE no obligation consultation.
THE LAST WORD
DRIVING THE SEVEN
Knowing that there are just 7 key numbers doesn’t help you take your business forward unless you know how to impact them and that’s why in the next issue we’ll take the Rule of 7 a step further.
In face you’ll learn there are just 7 key drivers to impact your 7 key numbers.
But you don’t need to wait until then to start building a better business because you can take advantage of an incredible FREE gift we are making to clients of Lyness Accountancy Practice Limited.
You see for ALL clients we have invested in VIP membership to one of the world’s leading business growth systems.
Register now with the Core Asset Vault to access pre-recorded webinars, and “playbooks” helping you implement some of the most powerful growth strategies developed.
As the Core Asset founder Steve Hackney says,
“Growing your business isn’t rocket science, but it is a science!”
Current clients of Lyness Accountancy Practie Limited should email [email protected] to obtain your exclusive link to your FREE VIP access!
JOIN US AT THE LYNESS GROWTH ACADEMY
10am on Tues 10th November 2020
HELPING YOUR BUSINESS SURVIVE & THRIVE
Do you want to secure your financial future and grow your personal wealth? Do you want exclusive access to the expertise and tools that will make this all possible? Then it’s time you join the Lyness Growth Academy.
- Monthly online business club
- Meetings, seminars and videos
- Extra Support and training on the Core Asset Free Business Development Program
- Discounts on trusted advisor services
- Telephone support, help and advice on commercial business issues
- Meetings online on the second Tuesday of each month
- Free to Clients, Non Clients £77 + VAT