10 steps to maximise value and improve profits within your business

Dave Gosling - Menzies Accountant

Dave Gosling – Partner and H&L Sector Specialist

Business owners in the hospitality and leisure sector spend a lot of time and effort working within the business. However, they should consider investing more time to de-risk the business, improve profits and increase business values.

Below are the areas business owners should focus on:

1 – Cash Management and forecasting

The sector is subject to seasonality of trade which makes cash flow management more difficult. Business owners who don’t have a full understanding of their working capital cycle and who don’t make provisions for loan repayments, VAT, and off peak times are likely to experience difficulties, which can have a significant impact on the business.

More time should be spent preparing regular forecasts for the business, which includes a cash flow forecast, to ensure they fully understand the cash movements of the business and make provisions for these.  It is key that they have a good working relationship with their bank manager or funders.

2 – Key Performance Indicators (KPIs)

All successful business owners will have an understanding of what makes their business work and ensure they have systems in place to report on these KPIs. Some will also understand industry benchmarks and how their business compares to these.

However, a number of business owners do not keep track of KPIs on a regular basis and do not act upon the information they receive.

3 – Staffing

Staffing issues are their biggest challenge in running a business and are normally the largest overhead in the sector. Therefore a number of business owners report difficulties with the recruitment and retention of employees. 

Owners who invest in staff training and development, who have career structures in place and promote the industry as a career choice have the least problems with staffing. A number of businesses have also reported an increase in turnover and profits as a result of an improved focus in staff development.

4 – Business Tax planning

A number of businesses do not claim tax reliefs available or undertake tax planning. The typical reliefs not being claimed or maximised are:

  • Capital allowance – If you are developing or improving a property then you could be entitled to capital allowances on a proportion of the costs.
  • Research & Development tax credits – If you are undertaking any product development, work of a technical nature, implementing new systems, websites or booking systems then you could be entitled to tax credits and potential refunds from HMRC.
  • Theatre tax credits – For businesses that undertake any performances, you could be entitled to enhanced tax credits.

5 – Employee benefits

A number of employees in the industry receive employee benefits such as accommodation, food and drink, entertainment etc. and normally there is a tax charge and a reporting requirement associated with these benefits.

However, a number of businesses do not fully understand the tax implications of certain employee costs and arrangements and the tax liabilities can be fairly high if not reported correctly.

6 – Financial and reporting systems

There have been significant developments in financial and reporting systems over the last few years and improved technology has meant that businesses can streamline their financial systems and become more efficient. Owners could benefit from the improved technology and should undertake a review of their systems and processes.

7 – Shareholders agreements

For a business which has more than one owner, a shareholders agreement can be the most important document that the business has, yet only a small number of businesses take the time to put one in place.  

The agreement will address issues relating to control and decision making, future potential share changes, potential sale of business, rights on shares and should outline actions to be taken on any disputed areas which could arise.

8 – Working in the business rather than on the business

This is a typical problem across all businesses, not just hospitality and leisure and is when business owners spend too much time in the business, rather than working on the business.  

Business owners that are able to devote time to the strategy and direction of the company and then work on driving these plans forward, always build a business with increased profits and value.

9 – Personal tax planning 

There are a number of options for shareholders to benefit from a company, including salary, dividends, pensions, director loans, benefits in kind etc. and HMRC have made various changes over the last few years on the tax position of each of these. Business owners should regularly review their remuneration and drawings from a business to ensure that these are structured in the most tax efficient manner.

10 – Speak to Menzies

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Posted in Blog, Hospitality & leisure