Increasing your business’s profitability as a tradesman or contractor isn’t about luck – it’s about taking proactive action. And it’s not just about increasing sales. It’s about managing costs, increasing efficiency, and making financial decisions. Want to make more money and keep it in your pocket? Let’s crack on with some simple but brilliant tips.
Managing cashflow
A steady cashflow is crucial for the financial health of a business. But many tradesmen and contractors struggle with their cashflow. There are lots of reasons behind that but delayed payments are the most common. To improve your cashflow, consider the following:
- Prompt invoices: As soon as the job is completed, send out your invoices. The longer you wait, the longer it will take for you to get paid.
- Set clear payment terms: Make it dead clear when you want paying – no messing about.
- Establish a reserve fund: Stick some cash aside for a rainy day – you’ll thank yourself later.
Tracking expenses
If you’re not keeping tabs on every penny you’re spending, you’re chucking money away. You may end up spending more than necessary on routine jobs without realising it or miss out on tax deduction opportunities.
Accounting software is particularly useful for tracking expenses. Include every business expenditure, from materials and tools to staff costs and fuel.
Leverage tax deductions
Tax bills can bleed your profits dry, but there’s plenty you can do to claw it back, especially with an increase to employer’s National Insurance coming in April 2025. Make sure that you’re claiming all the tax deductions you can.
Your focus should be on your day-to-day business expenses, the cost of which you can deduct from your pre-tax profit, leaving you with a smaller tax bill. Include the cost of business-related mileage or vehicle lease payments, tools and equipment, uniforms, and accounting fees. For larger investments, you may be able to claim allowable expenses to offset the cost against your profit. You can knock the cost of things like tools, uniforms, and even your accountant off your tax bill – so don’t miss out. Bonus.
If you have employees, make sure to claim the employment allowance. If you’re selling a business asset, claim the capital gains tax allowance.
There will be other opportunities to save money on your tax bill, so make sure to speak with a tax professional for some help.
Minimise your overheads
When you properly track your expenses, you’ll be able to more easily and effectively minimise your overheads. Here are some ideas to investigate, allowing you to cut costs without compromising quality:
- Streamline operations: Improve your scheduling and planning to avoid downtime between jobs. Invest in improved tools and machinery to streamline your future work.
- Negotiate with suppliers: If you’ve worked with certain suppliers for a while, it’s worth finding out whether they offer bulk discounts or special rates for repeat business.
- Outsource when necessary: Instead of hiring full-time staff for tasks like accounting or marketing, why not outsource to save on wages instead?
Setting competitive yet profitable pricing
And don’t forget, keeping costs down is just as important as bringing in cash. But so is working your pricing strategy. It’s a delicate balance: if your rates are too low, you risk undervaluing your work and cutting into your profits; price them too high, and you may drive customers away.
To find the sweet spot, research what other contractors in your area are charging. Then factor in your experience, skills and quality of your work. Could you offer better quality work, using your prices to signal that? Or is there an opportunity for you to offer simpler services for less?
Another thing you can do is offer additional services and options to those services. For example, you could include follow-up maintenance, justifying a higher price.
Make sure to regularly review your prices and adjust them as costs increase. Don’t hang about upping your prices if you need to – your bottom line depends on it! Especially when competitors do – it could hurt your bottom line.
Need a second pair of eyes to look over your business strategy? Get in touch with us. Let’s see how we can help.