Question for business types -turnover/profit etc.

[rob13]

During my hours of boredom, ive been browing businesses up for sale and they have figures of turnover & profit listed so that you get an idea of how successful it is. Now if Turnover was say £90k and Profit was only £7k then does this mean that they are living off £7k a year or are they factoring wages in on the £90k? There are a lot of businesses not making a lot if thats the case!

[MiniMatt]

Wages are expenses, taken against turnover. Profit is what's left over after all outgoings (inc wages) have been paid.

Edit: Typically businesses will do anything they can to reduce profit, as you get taxed on profit. So if you can "spend" it on assets, and hell even charitable donations then you lessen your tax exposure.

Edit 2: However, if you're looking at one man band businesses it's worth knowing what their wage bill is. As a one man band limited company you have a director's hat and an employee's hat and the two are quite different. You could pay yourself as an employee no wages at all yet still do alright for yourself thanks to dividends and the like.

[rob13]

It looks crazy when these business which appear to have few outgoings turning over £150k a year but then their profits only returning £6k a year.

[MiniMatt]

Ten or so years ago I ran my own company purely for tax reasons, I was contracting at the time and before IR35 put a stop to it there was an easy loophole for the taking. My company regularly made over £50K a year turnover (Y2K was great), paid it's staff (me and my then missus, in her role as company secretary) minimum wage (just enough for an NI contribution), had largely zero outgoings as we weren't selling any goods, just my time and expertise, yet somehow every year just scraped a break even. The rest went on suprisingly large dividends, a company motorbike (far more tax efficient that a company car), rent of office space in an oddly residential area, and an extremely generous director's pension plan.

EDIT: And client entertainment of course. Quite a lot of that from what little I remember through the haze.

[rob13]

Matt I do like your signature. Interestingly, what line of work were you in back in the early naughties?