How Profitable are UK Companies?

Today the Office of National Statistics has released its much-anticipated report on the profitability of UK businesses between January to March 2019.

With uncertainty surrounding Brexit, and rumours that UK companies have already seen their profits impacted by the decision to exit the EU – do the results measure up to the stories of impending doom?

What does the report tell us? 

According to the ONS report published 18th July 2019, Quarterly net rate of return has generally been stable for the past two years – in spite of Brexit.

The net rate of return for private non-financial corporations’ (PNFCs) was 12.3% in Q1 2019, slightly up from the estimate of 12.2% for Q4 2018.

While manufacturing companies’ profitability fell to 12.2%, services rose to 19%. This was caused primarily by a larger than usual fall in profitability by the food products, beverage and tobacco sector.

The net rate of return for services companies in Q1 2019 increased to 19% from an estimate in Q4 of 17.8%. This is the largest quarterly percentage increase since Q4 2016. The sub-sectors causing this were real estate activities, professional, scientific an technical activities, and administrative and support services activities.

So, while there are some expected dips in manufacturing – it isn’t quite the impending doom some would have us believe and at BusinessComparison we are optimistic about the opportunities for businesses pre and post-Brexit!

Turnover is Vanity, Profit is Sanity – right?

The landscape looks good for service businesses! Whether you’re a start-up or an established SME, nobody wants to be a busy fool and if your business doesn’t make you money then is it really a business at all?

It is easy to convince yourself that low profitability is a rites of passage for an ambitious business, inspired by news reports of household names such as Uber making heavy losses of £8bn since it was founded. But business owners shouldn’t allow themselves to feel reassured that this is normal or healthy. While these companies are usually financially supported by investors with deep pockets, regular small business owners can be crippled by a lack of fluidity in their cash flow.

Of course a short term squeeze on business profitability might be perfectly okay while investing or staging for high growth, in those instances, Business Finance is a great way to self-fund your growth plans as funding can be received into your bank account within a couple of weeks, subject to eligibility and approval! However, business lending is rarely a suitable option to rescue a business that is struggling to make a profit.

What can you do to improve profitability?

Our Managing Director, Philip Brennan gives his 5 top tips on how as a business owner you can stay in control of your business profitability:

1. Get to grips with your commercials – make sure you fully understand what you gross and net margins are, go through your budgets and forecasts and look closely at the pinch points. There are only three ways to improve profit – more sales, higher margin or lower costs!

2. Cutting back on resources such as making redundancies is a last resort. You can make huge savings by making small changes that don’t impact your operation, such as switching to cheaper business energy – this could easily translate into several hundred pounds a year from an action that takes just ten minutes! Or by looking at what banking fees you are paying and switching to a business bank that better suits your needs.

3. Check your bank account transactions closely – do you have subscriptions you have forgotten to cancel? Do you have software licences that you are paying for, for staff members you no longer have in your organisation?

4. Regularly review your pricing structure – how often do you appraise your pricing model against your competitors and the wider market? If you haven’t had a price increase in a while, it could be a good time to squeeze in some extra margin and help your business to be more profitable.

5. Consider using cloud based accounting software – these are relatively inexpensive, drastically reduce your book keeping costs and provide valuable visibility over how you are managing your finances – and with seamless integration with most business bank accounts (as well as HMRC) they are a great way to stay in control!