If turnover is rising but profit is flat, you don’t have a sales problem. You have leakage.
Most profit leaks are small on their own. Together, they can erase a strong month. The danger is that they get missed because you’re “busy”.
This article shows how to identify profit leaks in your limited company using simple checks you can run each month.
Start with the three questions that reveal leakage
Before you analyse anything, answer these:
- Did we sell the right work, at the right price?
- Did we deliver it with the cost base we planned?
- Did we collect cash in line with terms?
If you can’t answer one of these quickly, that’s your first leak: visibility.
Leak 1: Pricing and scope drift
Scope creep is often the biggest leak in service businesses, and the hardest to see in accounts.
Signs:
- Revenue is up, but gross margin is down.
- Staff are “flat out” but output per person isn’t improving.
- Projects finish, but the invoice value doesn’t match the effort.
What to check:
- Average selling price (ASP) this month vs last quarter
- Discounting patterns (especially “one-off” discounts that repeat)
- Change requests: are they priced, approved, and invoiced?
Fix:
Create a simple rule: any work outside the original scope needs one of three outcomes within 24 hours – priced, deferred, or rejected. No silent yeses.
Leak 2: Labour utilisation and delivery efficiency
Labour is often your main cost lever. Even a small utilisation dip can wipe out margin.
Signs:
- Wage cost grows faster than revenue.
- Overtime increases without a matching increase in billing.
- High “internal” work that never becomes deliverable value.
What to check:
- Revenue per head (or per billable head) trend
- Labour as a % of revenue
- Rework: how often tasks are done twice
You don’t need complex time tracking to start. A weekly “capacity and output” snapshot (planned hours vs delivered output) will surface gaps.
Fix:
Pick one operational metric and stick to it for 90 days. For many firms: “billable utilisation” for delivery teams, or “jobs completed per week” for trade/ops teams.
Leak 3: Subcontractors, materials, and purchased services
Subcontractors and external spend often creep because they feel variable and “necessary”.
Signs:
- Subcontractor costs rise even when pipeline is stable.
- Materials costs vary, but pricing stays fixed.
- Tools and software stack grows, but no one owns it.
What to check:
- Gross margin by job type / client
- Top 10 suppliers: spend this month vs average
- Recurring subscriptions: count and total monthly cost
Fix:
Assign ownership to every recurring cost. If nobody owns it, it gets cut or justified.
Leak 4: Overheads that grew quietly
Overheads don’t usually explode. They drift.
Examples:
- Extra systems and licences
- Delivery travel and small claims
- “Temporary” services that became permanent
- Office costs that stayed after working arrangement changes
What to check:
- Overheads as a % of revenue (trend)
- “Other” expense lines (always a warning)
- Any category up more than 10–15% over the last quarter
Fix:
Run a quarterly overhead reset. A planned review: keep, renegotiate, or remove.
Leak 5: Poor cash discipline that creates hidden cost
Cash leaks don’t just reduce bank balance. They create indirect cost: stress, rushed decisions, and expensive short-term fixes.
Signs:
- Debtors regularly exceed terms.
- You’re paying suppliers early but collecting late.
- VAT/PAYE deadlines cause sudden squeezes (UK) or tax payments surprise you (anywhere).
What to check:
- Aged receivables: 30/60/90+
- Payment terms on invoices vs actual days to pay
Fix:
Separate “invoicing” from “collections”. Invoicing is a bookkeeping activity. Collections is revenue protection. Make it someone’s weekly responsibility with a clear communication structure and escalation path.
Quick wins
- Add a monthly gross margin bridge: what changed and why.
- Identify your top 10 customers by profit, not revenue.
- Cap discounting: any discount above a set % needs approval.
- Review recurring costs: cancel anything without an owner.
- Tighten collections: chase at 7, 14, and 21 days (or before due, if you can).
Profit leaks are rarely dramatic. They’re operational habits that went unmeasured: scope drift, weak utilisation, supplier creep, and slow collections.
Put a simple monthly review in place and you’ll see the leaks quickly, and fix them without turning finance into a full-time job.
If you want help applying this to your numbers, book a call.
