Watch your margins when the good times roll

Beware a common trap of allowing margins to slip with business is good.

At Michaelides Warner we can help businesses in the Hammersmith area with a wide range of business issues. Here are some thoughts on keeping an eye on your margins...

It is not unusual during times of prosperity for businesses to let their margins slip, only to pay a heavy price when conditions later worsen.

When times are good, the market is burgeoning, and your business is enjoying high growth it is easy to take your eye off the ball and to be satisfied with the overall increase in profits rather than concentrate on maintaining your relative profitability.

Suppose, for example, that your input costs slowly increase during a period of high growth. Because your overall profits are also increasing you might not bother to pass this onto the customer.

But the overall increase in profit conceals a reduction of your bottom line as a percentage of gross sales, and therefore a decrease in your relative profitability.

Suppose your sales are up from £1.5million two years ago to £2million this year, but your profits have only increased from £150,000 to £180,000. With a 20% percent increase in profits you might be tempted to ignore the erosion of your gross margin - until things take a turn for the worse that is.

It is one thing to pass increased costs onto the customer when times are good, but a very different proposition during a downturn. And if you cannot restore your margins you are going to feel the pinch.

The moral, therefore, is always to keep your eye on your margins and not to let them slip - even during times of prosperity.

If you are in the Hammersmith area and are looking for support and advice from an experienced team of accountants, contact Michaelides Warner.

Aside image

Accountancy services tailored to you.

Find out more »

Aside image

Are you tired of bookkeeping?

Find out more »

Aside image

Is your business just starting up?

Find out more »

Aside image

Are you paying the right amount of VAT?

Find out more »

Aside image

Struggling with your self assessment tax return?

Find out more »

Aside image

Looking for more than just compliance services?

Find out more »

Why not register to receive our Monthly Newswire?

Once a month we'll send you an email packed full of essential business news and handy tax tips to help save you money.

Sign up now