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Why Your Business Needs to Focus on Profit and Not Taxation

Paul Sweeney
Paul Sweeney

To ensure you have a more profitable business you need to stop the focus from being on taxation.

Taxation is mandatory. It is a requirement at the end of each year. Every business must submit an income tax return. Many business owners are focused on solving the problem of "how can I pay less tax", "how can I increase my deductions?" or, "is there a way I can reduce my income?"

It is the right of every business owner to structure their business affairs to legitimately minimise taxation. And from time to time there exist certain tax concessions, government grants and concessions that will be to your advantage by reducing your tax burden, without you reducing your profit. But, focusing on tax can be a dangerous preoccupation.

Instead increase your wealth by maximising after tax profit. That is, maximising the amount of profit you have left at your disposal after you have paid all taxes. After tax profit is increased by operating your business more efficiently, making more profitable sales and by generally increasing revenue from sales.

Tax is merely the outcome. Tax is a percentage of profit. The higher your profit, the higher your tax. The opposite is also true. The lower your profit, the lower your tax.

So, the easiest tax minimisation strategy is to make less profit. To pay no tax you need to make no profit or make a loss.

Running a business to make no profit, or to operate at a loss is completely at odds with why people start businesses.

Nobody starts a business with the intention of making a loss. Every person who has ever owned a business would agree that making a loss is not a desirable goal. Your goal is to make profit. And not just a profit, but the amount of profit you need from your business so that you have the capacity and freedom to enjoy those things in life that are most important to you.

Instead of focusing on how to reduce tax you need to focus on how to increase your after-tax profit.

How to increase profits for small business? Here are 7 actions you can take now to start increasing your next year's profit.

1. Find out which customers really are profitable - you may be surprised!
There are some important questions to ask of your customers:

  • How much profit do you make from each customer?
  • When was the last time you looked at how much profit you make from each customer?

Review how profitable each of your customers are and change the price or reduce the extras so that you do make a profit.

2. Be more consistent in delivery
Create a sales and delivery process that is documented, standardised and repeatable is to create efficiency: delivering the sales in the same way, at the same quality and for the same cost each time.

When you do this, you reduce the cost of supply as well as the incidence of errors, mistakes and reworks, and you make more profit.

3. Review your pricing
When was the last time you increased your prices? Stop absorbing price increases from suppliers and increasing wage demands. When you absorb these increases, your profit falls. Sure, you may lose some customers when you increase prices; but these are often the unprofitable customers.

4. Improve your marketing strategy
Why are your competitors increasing their market share at your expense? Because they are marketing the benefits of their products, ensuring repeat sales from existing customers and attracting new customers.

Businesses that incorporate a well-defined marketing strategy into their whole business plan are more profitable.

5. Evolve by introducing new products or services
Few companies can survive without changing and introducing new products over time. Those that don't evolve either have a unique and durable product or they are no longer in existence.

6. Create recurring revenue streams
Sales are a necessary part of creating profit. Recurring sales help establish predictable and steady profits. Creating quality sources of recurring revenue such as memberships, licenses, maintenance and more can help businesses sustain and remain profitable for the long term.

7. Eliminate unnecessary expenses
Review you current spending, cancel unnecessary subscriptions, and eliminate spending that is not essential or does not add value to your processes.

The seven ways to increase profits are quite simple. The hard part is making it happen. Many businesses fail to progress because they don't know where to make changes or how to start. Alternatively, they commit to 10-20 actions and try to solve all of them and do a lousy job.

The best way to overcome this is to get advice from an experienced business advisor. We help business owners create high-performing businesses by working on the focus, the plans, the actions and the implementation. We suggest you start by focusing on your three most important actions.

We keep you accountable and focused on the actions you need to take to create positive change so that your business continues to grow profitably.

Published on by BiziNet

Pretium Solutions Pty Ltd

Pretium Solutions Pty Ltd

Tel: 02 9135 8450
Street Address: Suite 113, Nexus Norwest, 4 Columbia Court, Baulkham Hills NSW 2153

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