Running a small or medium-sized business in the UK right now is not for the faint-hearted. A sluggish economy, subdued consumer and business confidence, and rising employment costs from National Minimum Wage increases and higher employers’ National Insurance contributions are squeezing margins from every direction. The ICAEW’s Business Confidence Monitor, published in January 2026, paints a sobering picture; business sentiment has fallen to -11.1, its lowest point since late 2022 and the sixth consecutive quarterly decline. A record 64% of firms now cite the tax burden as a growing challenge which is more than three times the historical average and concerns about regulatory requirements have reached a seven-year high. Employment growth has slowed to its weakest rate since 2012 outside the pandemic period, and domestic sales growth continues to lag behind historical norms. For SME owners the pressure to maintain profitability has rarely been greater.  

The good news? There are practical steps you can take today to improve your bottom line, build resilience, and position your business for growth even in challenging times.  

Profit improvement is not about cutting corners or making drastic changes that undermine what makes your business successful. Instead, it is about understanding what truly drives performance and making informed decisions that deliver meaningful results. In essence, there are three key levers you can pull to improve profitability: growing revenue, improving margins, and reducing overhead costs. Let us explore each in turn.  

Growing Turnover: Finding New Revenue Without Losing Focus 

When times are tough, the instinct can be to batten down the hatches and wait for conditions to improve. However, businesses that thrive in difficult environments are often those that take a proactive approach to revenue growth not through scattergun expansion, but through focused, strategic action.  

Start by examining your existing customer base. Your current customers already know, trust, and value what you do. Are there additional products or services you could offer them? Could you increase the frequency or value of their purchases through bundled offers or loyalty incentives? Often, the most cost-effective route to revenue growth lies in deepening relationships with people who already choose to do business with you. Research consistently shows that customer retention is almost always more profitable than new customer acquisition, yet many businesses focus disproportionately on chasing new leads rather than nurturing what they already have. Business is becoming transactional but relationships matter so engage with customers to improve retention and repeat purchases.   

Next, consider your pricing. Many SME owners are reluctant to raise prices, fearing they will lose customers. Yet in an inflationary environment, holding prices static effectively means accepting reduced margins and lower profits. Review your pricing structure carefully. Are you charging appropriately for the value you deliver? A modest, well communicated price adjustment can have a significant impact on profitability without materially affecting customer retention.  

Finally, look at your sales pipeline or footfall data and conversion rates. How many enquiries or customers turn into actual sales? What happens to the prospects who do not convert? A small improvement in conversion rates can generate substantial additional revenue without requiring a single new lead. Regularly reviewing your sales process, training your team, and refining your follow-up procedures can all contribute to better outcomes. 

Improving Margins: Getting More from Every Pound of Revenue 

Turnover is vanity, profit is sanity; so the saying goes. Growing sales is important, but if your margins are being eroded, you may simply be working harder for less reward. Margin improvement requires a clear-eyed look at both your revenue and your direct costs. 

Begin with your gross margin (the difference between what you sell a product or service for and what it costs you to deliver it). Are your supplier costs creeping up? Have you renegotiated terms recently, or are you accepting the first price quoted? Building stronger relationships with key suppliers, consolidating purchasing, or exploring alternative providers can all help to protect or improve your margins. 

Consider, too, the mix of products or services you offer. Not everything in your portfolio will be equally profitable. Analysing which lines deliver the best margins and focusing your sales and marketing efforts accordingly can shift your overall profitability in a positive direction. Remember, your best-selling products or services are not necessarily your most profitable ones; understanding this distinction is crucial. Sometimes, pruning low-margin products and services frees up capacity and resources to concentrate on what really drives your business forward. 

Operational efficiency also plays a role here. Are there bottlenecks in your processes that cause delays, waste, or rework? Streamlining operations, investing in technology where it makes sense, and ensuring your team has the training and tools they need can all contribute to delivering more value at lower cost. 

Reducing Overhead Costs: Tightening the Belt Without Compromising Quality 

Overhead costs such as rent, utilities, insurance, professional fees, and so on can quietly consume a significant portion of your revenue. In a challenging economic environment, scrutinising these costs is essential, but the aim should be to cut wisely rather than indiscriminately.  

Start with a line-by-line review of your fixed costs. When did you last review your insurance policies, telephone or broadband contracts, or energy supplier? Markets change, and providers often offer better deals to new customers than to loyal ones. Taking the time to compare and renegotiate can yield meaningful savings. Look for value added in all relationships.  

Employment costs are typically the largest overhead for most SMEs, and they are rising. With increases to the National Minimum Wage and employers’ National Insurance, managing your wage bill effectively is more important than ever. This does not necessarily mean reducing headcount; instead, focus on productivity. Are your people deployed in the most effective way? Could flexible working arrangements, improved scheduling, or targeted training help you get more from your existing team?  

Technology can also be a powerful tool for overhead reduction. Cloud-based software, automation of routine tasks, and better use of data can all reduce administrative burdens and free up time for higher-value activities. The key is to invest in technology that genuinely supports your business goals, rather than adopting the latest trend for its own sake.  

Building Resilience: Why Understanding the Numbers Matters 

Profit improvement is not a one-off exercise. The most successful SME owners treat it as an ongoing discipline, regularly reviewing performance, identifying areas for improvement, and taking action before problems become crises. This requires reliable financial data, presented in a way that supports decision-making rather than simply meeting compliance requirements. Cash flow forecasting, in particular, is consistently cited as essential for maintaining financial agility and avoiding the reactive decisions that often come during downturns.  

Understanding what the numbers are telling you and having a trusted adviser to help interpret them can make all the difference. Regular management accounts, cash flow forecasts, and key performance indicators give you the insight to spot trends early, make informed decisions, and stay in control of your business.  

In uncertain times, the businesses that thrive are those that plan, adapt, and take action. By focusing on the three levers of turnover growth, margin improvement, and overhead reduction, you can build a more resilient, more profitable business whatever the external environment throws at you.  

Five Key Takeaways 

• Growing turnover starts with your existing customers. Focus on deepening relationships, reviewing pricing, and improving conversion rates before chasing new leads.  

• Protect your margins by regularly reviewing supplier costs, analysing product or service profitability, and streamlining operations to reduce waste and inefficiency.  

• Scrutinise overhead costs line by line. Renegotiate contracts, review insurance and utilities, and invest in technology that genuinely improves productivity.  

• Manage employment costs through smarter deployment, flexible working, and targeted training not simply by cutting headcount.  

• Treat profit improvement as an ongoing discipline. Regular financial review and trusted advice help you make informed decisions and stay ahead of challenges.  

The business advisory team at Nicholsons work with business owners every week to identify areas where profitability and resilience can be improved. If you are interested in how we help clients please reach out to us by sending an email to hello@nicholsonsca.co.uk