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Revenues growing but Profits stagnating?

Activity Based Costing: It is as simple as A-B-C! 

We have all noticed the Economic growth over the past 18 months (not as much as our ‘Leprechaun Economics’ 26% growth spurt!), but gradual growth in most industries across the country. However, one challenge we hear from clients on a regular basis is that while Revenues are increasing, margins and profits are stagnant. The confidence of sales and growth are hindered by ongoing cash-flow challenges. The underlying challenge here is cost increases and supply chain leakages.While one solution to resolve this problem is is to undertake an Activity Based Costing (ABC) review so as to correctly allocate all costs underlying a product or service, by linking each direct and indirect cost to the activity that drives it. This ABC task discloses great detail to support pricing, tendering and cost reduction activities. ABC uses a P&L as the input tool to build cost models for service provision where both people and overheads are detailed in a cost, while for products, ABC allocates all costs to products by linking the cost of the activity that drives it to provide benefits such as;

  • Elimination of under cost servicing with an accurate pricing model for all products/services, especially complex service Tenders where all aspects of the job can be fully costed from the outset
  • Remove/reduce “non value added” activities from the production process, saving significant time (often estimated to be 30% of the underlying costs in all processes), while improving output
  • Determine how to positively impact sales price by adjusting costly inputs
  • “Open book” transparency to share with and/or educate clients

So to summarise, Activity-based costing (ABC) is a costing methodology that identifies activities in an organisation and assigns the cost of each activity with resources to all products and services according to the actual consumption by each. Could a forensic ABC Review help business owners get more accurate product costing and help save time and reduce costs?

Call us today to learn of similar ABC projects which we have undertaken recently while to clarify any queries you may have.

Public Procurement Training

Empowering & Transforming the Procurement Professional

Arvo in partnership with IDD Consult offer tailored training to meet the needs of buyers, from those beginning their procurement career through to seasoned practitioners. We develop the mindset, toolset and skillset of public sector buyers to ensure you are armed to deal with the growing demands in your role e.g. risk, savings, technology and compliance

 

The first step is to assess your current procurement ways of working across 5 different levers – process, people, technology, knowledge and culture, which will diagnose an appropriate Training Plan, leading to appropriate avenues such as workshop training, Certificate/Degree/Masters Qualifications etc. We develop bespoke courses specifically to your needs, built on this initial self assessment of your procurement competencies.

 

We will empower you and your team to make the process of procurement leaner, smarter, better and develop the procurement department as a hub of trusted advisers for internal stakeholders, suppliers and customers.

 

So take the next step on your career and provide some brief contact details below so as we can furnish you with further details;

Claim all your Capital Allowance Rebates

Recently, we have worked closely with a business that saves tax for commercial property owners by generating rebates from Revenue, where suitable. This is achieved by extracting capital allowances from the integral parts of commercial buildings, that are not easily identifiable by accountants.

CAPLUS have worked with the Revenue Commissioners to develop the practice and procedure for establishing valuations, using their expertise in capital allowances to provide a streamlined claims process compliant with Irish Tax Law. A large value of allowances go unclaimed each year but these Capital Allowance experts can unlock much needed cash from businesses.

When capital expenditure is incurred on constructing, refurbishing or fitting out a property, there can be substantial tax savings available on the cost of particular installations know as plant and machinery. This category of expenditure covers many items including building services installations of heating and ventilation, hot and cold water, parts of the electrical systems and other mechanical systems. It also includes a wide range of items defined as plant under tax law and accepted practice.

 

Capital allowances reduce the amount of tax payable on profits and can also provide rebates on tax already paid in previous years. A valuable cash flow benefit can be obtained through a claim for allowances.

 

Key Points

  • Allowances reduce the amount of tax payable on profits.

  • Tax rebates can be claimed on tax paid over previous years.

  • Allowances are used over an 8 year period at 12.5% per annum straight line basis.

  • Ability to backdate claim over last 4 years provides rebate potential if tax has been paid in those prior years.

  • Best opportunity to maximise relief is historic expenditure where a 4-year rebate can be made with a further reduction in tax over the following 4 years.

  • Cash benefit of allowances depends on tax rate paid by client. It is greater with higher rate income tax payers and lower with 12.5% corporation tax payers.

  • Relief is available for new builds, refurbished or acquired properties.

Correct and Reduce your Insurance Spend

Undertaking some or all of the following tips will reduce your Commercial Insurance Costs. Start today to reduce your insurance premium, increase/correct your cover and ensure maximum claim benefit thereafter.

 

1.       Make sure your business description adequately reflects all the activities of your business.  In the event of a claim, one of the first areas reviewed is the business description to ensure that the activity giving rise to the claim falls within the scope of your business description.

2.       Calculate your property and business interruption sums insured accurately. Nearly all property insurance policies have an under insurance clause in them.  If you do not have adequate sums insured this clause will apply and any claim will be reduced proportionately.

3.       Clarify the exact construction of your property from the walls, floor, internal floors and roof. If there are any double skin / cladding panels in either the external or internal building, insurers require to know the infill of these.  Find out the age, when it was last re-wired , re-roofed, re-plumbed. People often describe their building as standard construction and this is a vague term and in the event of a claim can invariably cause issues.

4.       One of the main rating factors for property is the fire risk. Find out what minimises your risk and ensure the broker quoting has been given all the information i.e. sprinklers systems, alarms, water tanks, proximity of nearest fire brigade, number of fire extinguishers and/or hose reels.

5.       If you invest in Health & Safety over and above require by law, make sure your  current or potential insurance provider knows about it.Advise them of the training procedures, induction procedures etc that you have in place. It will help show any prospective insurer that you take your risk seriously and actively try to minimise any possible exposures.

6.       Advise any prospective insurer of the Territorial Limits required, i.e. where in the world both your products are used and/or your employees are involved in work.  Many policies only give Territorial Limits for Ireland and Ireland/U.K  only unless required otherwise. Any activity outside of this needs to be advised to insurers to ensure the relevant extensions are provided.

7.       Know your exact claims history. Give detailed explanations of each claim describing the circumstances, date of event of the claim and any changes you have made since to minimise a similar claim re-occurring.