Business adviser and accountant James Hellyer looks at how to keep your business in shape

Speaking to a lot of people in the North Devon business community, I have noticed a general attitude of optimism concerning the year ahead. However, there are many reasons why 2011 might herald an even harsher economic climate for the region.

The South West is more reliant than much of the country on state sector jobs. Some of these jobs may well go as part of the comprehensive spending review. That will impact on secondary spend, as those made unemployed suddenly don't have disposable incomes to spend in local shops, pubs and restaurants. Add to this the imminent increase in the rate of VAT and there's a potential double whammy waiting to hit North Devon business.

So what can you do to prepare your business for tough times ahead?

Well, now is the time to have a business and tax health check.

Business health check
There are some things every business should know about itself. Many don't because they are too busy working in the business to work on their business.

Ask yourself these questions:

> Do you know how much you have to sell each week or month in order just to break even (ie to cover your costs)? Identifying the required sales volume should be the first thing you do. > Do you know what your gross profit margin is? If it's too low, you may not cover your overheads, and even if you increase unit sales, you may just be working harder to continue making a loss.

> Do you know whether all of your product lines are profitable? Perhaps you should find out and stop selling products that don’t make you money.

> Are your prices right? One of the easiest ways to make more money is to increase your prices. Can you get the formula right so you can sell for more, but not lose customers?

Tax health check
When times are hard for your business, there are many steps you can take to accelerate tax relief or even to get HM Revenue to put cash into your bank account.

Have you discussed any of the following with your accountant?

> If your business is a sole trader or partnership with a year-end other than 5 April or 31 March, it may have early year's profits (called 'overlap profits') that have been taxed twice. Normally, you get relief for this when the business stops trading. But wouldn't you rather have that relief now? You can if you change your year-end.

> If your profits have dropped in the last year, whether due to difficult trading conditions or even capital investment, then you might be eligible for tax credits. Hundreds of millions of pounds to which people are entitled go unclaimed each year. Some of them could be yours.

> If your business has made losses, you could change its year-end to make sure you receive any tax refund due to you sooner rather than later.

> Are you claiming all the reliefs you are entitled to? For example, if your business has spent money developing or improving products or services over the last year or more, then it may be entitled to enhanced tax credits. These can cut your tax bill and even generate a refund for businesses in their early years when you have yet to pay tax.

> Have you considered the tax allowances available for plant and machinery purchases? If you were planning on buying something next year, purchasing it now, under some circumstances, could get you tax relief a whole year early.

> Have you bought commercial property or are you thinking of buying some? Again, careful planning could maximise the amount of the property that's eligible for tax relief. This is just a small sample of the topics you could be discussing with your accountant right now to ensure that your business is in the best trading and tax position possible when things begin to bite.

BUSINESS ACTION
> Identify how much you need to sell to break even.
> Ensure your profit margin is right.
> Set your prices at the right level.
> Make sure you claim all tax reliefs and tax credits.
> Consider changing your year-end to receive tax refunds sooner.

James Hellyer
t: 07736 686676
e: james_hellyer@accountant.com
twitter: @james_hellyer
Free initial business and tax health check