Houston – we have a problem, we have a profit

Ian Lawlor from JPA Brenson Lawlor Chartered Accountants advises The Hardware Journal readers on how best to use their profits.

Much of what you need to know about business can be summarised by the following phrase – ‘Revenue is Vanity. Profit is sanity. Cash is reality’, That’s it. That’s all you need to know. Assuming your sanity (though I know many who say to go into business that you have to be a bit crazy!), then what do you do with the profit? (a very nice problem to have)

For those in business you know that you can have the biggest turnover in the world, trillions of Euro if you can count that much, but if you’re not making a profit you’re out of business. Hence that sanity bit. Every business owner is in business to make a profit. Quite literally, that’s the bottom line.

For early-stagers crossing the line from red ink (loss) to black ink (profit) can be difficult (if it was easy everybody would be doing it). Sometimes it feels near impossible. Indeed, sometimes it is impossible. However, entrepreneurs are, by their nature, grafters and through hard work and perseverance the day comes when the business turns a profit. So well done.

But who would ever think that a profit could cause you a headache? Well, not quite something you have to take a Panadol for, but something you should definitely seek advice about, ideally from your company doctor, also known as your accountant. You can, of course, use the profit to go on that six-month cruise you always dreamt of, but that could also see the end of your business, so keep dreaming. What you actually need is advice on what to do with any profits that will ensure the long-term success and future growth of your business, the wellspring of your wealth. Here are some of our best ideas:

Developing your Business

1. Rainy Day Fund – Expect sunshine and showers. All businesses see ups and downs. Ensure you have adequate working capital in the event of an unexpected low trading period or an emergency expense.
2. Keep your sunny side out – Invest in marketing/digital marketing as an effective way of expanding your customer base and growing your business. However, marketing will only add value when the results are correctly analysed, understood and actioned. If it is not your business area of expertise find somebody who knows this area of business. Unfortunately, this is an area that does need a constant spend and attention.
3. You may need a brolly. Invest directly in the business – Improvements in equipment, infrastructure, processing output and customer care, this will continue to increase your business profits facilitating the future growth of your business.
4. Check the business weather forecast – Plan to diversify into new products or services or look at new business acquisitions. What to consider?

• Bank funding required?
• Employment & Investment Incentive Scheme (EII Scheme) is this an option?
• Grants available?
• R & D Tax Credits – have you carried out qualifying research & development?

Employees

1. Your most important asset. Invest in your employees through professional development, training and continuing education. Business owners who invest in the professional development of their employees see a positive, long-term, impact on their business. Higher skilled employees improve a business’s performance and employees who see you investing in their future feel much greater loyalty to your business.
2. Reward your employees – as your business grows and your profits increase you may wish to provide benefits that are a tax efficient way of rewarding your employees. These include;

• Small Gift Exemption €500
• Company Pension Scheme
• Health Insurance
• Social Club

At JPA Brenson Lawlor, we believe if you create a positive company culture with a happy workforce, this will lead to increase productivity.

You – Business Owner

1. Pay yourself – I’ve been in practice for decades, but it still amazes me the amount of business owners who take little to no salary for themselves. Of course, this makes no sense but sense or not, it still happens. Frequently. Make sure to pay yourself a market salary or alternatively take a bonus at the end of the financial year. There is the immediate benefit to paying yourself a salary but also a future benefit. Your salary is the basis for the allowable level of employer pension contributions and determines the level of tax-free termination payment you could receive should you wish to sell at a future date.
2. Speaking of pensions – and before you switch off as many do on hearing that ‘p’ word – remember that your pension is one of the last great tax deductions left in this country. Employer pension contributions are a tax efficient way of creating personal independent wealth aside to that of your business so don’t delay in getting a pension fund set up to provide for your future retirement.

Ian Lawlor – Managing Partner ian@brensonlawlor.ie

This Business Support article featured in the May June 2019 edition of The Hardware Journal.