Maximizing Profitability During Company Growth

As your company grows, a good accountant can be the best asset you have, since they can advise you on ways to maximize the impact of your growth on profitability.

There are four strategic changes you should consult with your CPA about so they can assess any potential impact to your business valuation and tax liability. These may not be so obvious, but they can have a big impact on the health of your business and profitability.

Expanding into New Locations

When a company decides to relocate, the decisions regarding the change, such as whether you should buy or lease the property and even its location, can have an impact on your profitability, but not all of the impacts are as straightforward as they seem. The difference between ownership versus leasing can have a clear impact, but there are other factors to consider as well.

Some costs may change, such as shipping (if you move further from suppliers), employment-related costs like retention or replacement of key employees, visibility, competition, traffic, and, branding costs for the new location. These all can clearly have an impact on profitability.

Adding or Making Changes to Staffing

This is easy to see, and if you are thinking about moving to a new location, I’d be surprised if you had not considered these costs. A quick reminder is still a good thing here. Obviously adding staff will increase employment costs (and taxes), but so does replacing staff. Hiring someone at the same level of experience is likely to be more costly, which raises the question of how that might impact salaries of other employees you may want – or need – to retain. Then there are costs and impacts due to offering required benefits, the addition or expansion of a retirement benefits – the list goes on.

Are there advances in technology or other factors that may make additional hiring or staff reduction more or less profitable? A reduction in staff can impact productivity and profitability. How will severance payments or potential litigation impact your cashflow? These are topics your accountant can – and should – advise you on.

Merging with or Acquiring Another Company

Here the main issue is making sure you have accurately assessed the value of your business going into an acquisition or merger or, if your company is the surviving company, that you have an accurate picture of all costs involved with the merger, the actual value of the assets you are acquiring, and the total increased business value after the merger. Simple, right? A good accountant can make sure it is.

Positioning the Business for Acquisition or Sale

Getting ready to sell your business is a topic I’ve written about before (like with this blog), so I’ll keep this brief. Plan for it. Start planning the day after you open your business (or today if that day has already passed), and update the plan periodically. Get partnership agreements in place, and make sure your accounting system is always as accurate as possible. You never know when a decision will need to be made to sell or merge. Let your accountant help you prepare for that – because it will happen someday.

Need additional information? Contact us for a complimentary conversation about things that impact the profitability of your business.