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Watch your margins when the good times roll

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

At Numera we can help businesses in the London 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 London area and are looking for support and advice from an experienced team of accountants, contact Numera.

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Company details

020 7794 5757

Numera, 4th Floor Charles House, 108-110 Finchley Road, London NW3 5JJ

Numera is a trading name of Numera Partners LLP | Company Registration No. OC365787 | Place of Registration: England & Wales | Registered to carry on audit work in the UK by the Institute of Chartered Accountants in England and Wales.

About us

Numera is a newly established forward-thinking firm of chartered accountants, with over 25 years in experience of audit, accountancy, taxation and business advisory services.

We work with clients in a large variety of industries and sectors; from sole traders to multi-million pound turnover organisations. We aim to create and maintain a close relationship with our clients. By being so involved, we are able to identify opportunities for our clients as well as possible risks that our clients may be faced with.

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