We’re around half way through the financial year and so it’s a good time to make plans for reducing your tax bill and improving your business’ tax efficiency.

One way businesses can not only become more tax efficient but also grow the business, is to reinvest profits back into the company. Astute investments in your organisation’s infrastructure, equipment and machinery, staff and training, or existing assets, can increase productivity and profitability, as well as ensuring profits are kept in the business and not handed over to the tax man.

How Much Should You Reinvest?

This is the crucial question. While you might begrudge paying HMRC a large sum of your profits, equally you don’t want to be cash poor. So you first step should be to reassess your cashflow forecasts and consider worse case scenarios – for example losing an important contract, or a key person leaving the business.

Ask yourself, ‘If disaster strikes having spent that money, what will it mean to my business?’

That said if we were all completely risk-adverse business growth would be stagnant. The key is finding a balance, ensuring you still have enough in the pot to mitigate against predicable setbacks; and you spend carefully in areas that will enable your business to grow.

Where Should You Reinvest Profits?

Before making any decisions to invest in new assets for your business, it is important to look at your existing assets. Do you have machinery that needs upgrading? Do you have equipment that is costing you money in terms of maintenance, poor efficiency or limitations in capability?

Are your current assets able to drive growth and enable you to compete into the next financial year and beyond?

Take stock of what you already have and prioritise this for reinvestment – whether that means repairs, upgrades or replacements.

Don’t limit this assessment to equipment, machinery, commercial vehicles etc., also consider your businesses premises: would it be smart to invest in larger premises so you can grow your capacity, relocate the business to a more profitably postcode, or refurbish your existing premises to attract new clients, and increase employee engagement?

New Asset Purchases

If you still have profits that can be reinvested after taking care of your current assets, where to invest them?

Your priority should be to invest in assets that will have the most impact on your business now. What will make you more profitable, and help you achieve your business goals? Maybe a legacy issue with your IT infrastructure is holding you back? Therefore investment in a scalable IT solution would enable your existing employees to work more efficiently, and give you the capacity to grow your workforce in the future.

Alternatively, would new technology make you more competitive, expanding your services or product range? Keeping up with innovation and investing in appropriate technology is important; businesses must ensure that they don’t get left behind by their competitors.

What If You Don’t Have Enough ££££££s?

As we’re only half way through 2015/2016, your profit forecasts should give you some idea of how much you will have to spend in February / March 2016. With this in mind you can start planning your investments now, or if you’re looking to make several asset purchases you could go shopping straightaway!

However, you may have identified areas that would benefit from investment in this financial year for which you don’t have sufficient funds. In these instances it could be worthwhile considering asset finance to help you make these purchases and deliver key benefits to your business now.

Options include:

  1. Hire purchase of hard assets: This involves fixed payments over a fixed period on purchases of hard assets – those with a forced sale value such as land, buildings, inventory, machinery etc.
  2. Lease rental: This option may be appropriate for acquiring soft assets such as IT equipment or furniture.

If you would like any advice on asset finance and to explore your options, please contact me or leave a comment at the bottom of this post.

Now’s the time to start planning how to reinvest your profits, improve the tax efficiency of your organisation and set your business up for growth and increased profitability into the 2016/2017. I hope this post provides a little motivation to start that process.