Are You Really Profitable? The Question Every UK Business Owner Should Ask Their Freelance Accountant
A freelance accountant can be more than a number crammer here. They help you make smarter, leaner decision making through the analysis of your real profit margins. Unfortunately, many UK businesses are operating under the illusion of profitability, and that illusion can be very expensive.
Difference Between Gross Vs. Net Profit
High turnover is one of the most common misconceptions held by small UK businesses of equating high turnover with high profit. Though your gross revenue may impress, you’re still a long way from ‘the real story’ – having come to it only after you’ve extracted all of the costs from the equation: salaries, rent, taxes, marketing, equipment, professional fees.
A well meaning business can grow their top line without noticing margin shrinkage. Let’s take an example: If a consultancy firm earns £200,000 a year but spends £180,000 to keep running, its actual profit is £20,000 — 10%. Worse, many companies fail to see hidden or regular costs such as subscription tools, interest payments, or seasonal changes, all of which erode real profitability.
Why Your Freelance Accountant Should Question Your Assumptions
Not Just a Bookkeeper: A Strategic Partner
Although some UK business owners still view accountants as purely administrative, today’s freelance accountant provides much more than compliance services. By reviewing your income statements, they see what is inflating your cost centres, and what opportunities exist for high margin.
A good freelance accountant will question the assumptions:
“Profit goes up if sales go up.”
“Each of my services is equally profitable.”
“More people will be hired to increase output and profit.”
The problem with these assumptions is that they can cause bloated operations. For example, you might be investing in a product or service line that has low return on investment and neglecting a smaller and more profitable one. Segment level performance can be dissected by an accountant to guide your focus.
Cash Flow ≠ Profitability
The problem of late payments is still a problem for small businesses in the UK. Federations confess, approximately one in every three payments to SMEs are late, adversely affects cash flow.
However, most people make a mistake here—cash flow, or what’s in your account right now, doesn’t show long term profitability. If your expenses are always higher than your earnings, you may be cash rich because you have just received a payment, but you’re still losing money. A freelance accountant can assist you in understanding your cash position in relation to the rest of your financial planning and budget forecasts.
Profitability Killers You Are Missing
Inefficient Pricing Models
In competitive UK markets, many businesses are afraid of losing clients, and undercharge for services. However, overpricing can be more harmful than underpricing, especially if you are working below the break even point. It can get difficult to accurately determine how much the pricing model will actually provide to cover your overheads and your desired profit margins without the help of an accountant.
Lack of Performance Metrics
Do you track the profitability of your clients or services providing? Without data backed insights, it is easy to keep offering low margin services out of habit. An accountant who is good at his job can help you set up tracking of costs per product or service line so you can see where your actual profits are.
Moving from Busy to Profitable
Being busy is not the same as being profitable. Long hours are hustled by many UK entrepreneurs, only to discover that their financial year end shows marginal gains. If you have heard that before, it is time to rethink what success really is.
Instead of asking “How much have I made?”, begin asking questions like:
“How much did I keep?”
“How much return is being generated on each area?”
“Where am I spending money that is not returning anything?”
And your freelance accountant should be the one asking these questions to drive meaningful business decisions.
Final Thoughts
In the UK’s competitive market, profit, not revenue, is what builds sustainable success. Also real profit is often hidden between layers of costs, misaligned strategies, and wrong assumptions. That’s why working with a freelance accountant you know is good practice, but it’s a strategic advantage. And even if it is, it is about growing smart.