You can optimize profit in different ways. On the one hand, an economic optimization of companies can be carried out. This is probably the most common form of profit optimization. It uses all the business tools available to a company. In addition, it must always be adapted to the ongoing development. Factors that have an impact both inside and outside the company are influencing. In addition, however, tax aspects are also important. Here, too, you can optimize the profit by minimizing the taxable part. But as an entrepreneur you should also optimize the temporal profit. In our fast-moving times, increasing efficiency is always desirable for entrepreneurs. For many self-employed people, time gain is even a precious commodity equivalent to economic success. And if you include the factor of time in the consideration to optimize the personal profit, then you should also be careful to choose the ideal time to pay out the profit.

One of the most essential human characteristics is optimization. Mostly this means the increase of valuable material, but also immaterial objects. It's commonly believed that humans have this trait because it's in our genes to stockpile. After all, our ancestors have had to be able to deal regularly with changing environmental conditions and thus different conditions in the availability of food. Words such as precaution, nest eggs or dry streaks are eloquent indications in our own language that this is still a necessary part of our everyday life in all of us in the truest sense of the word, although in Germany we are generally among the most advanced countries in the world.

But I also believe that we humans have an inner drive that makes us strive for perfection. It goes far beyond the precautionary measures that should protect us from unforeseen or foreseeable distress earlier. After all, it is also emotionally a completely different feeling when you create a food supply for a possible lock down, or just master a task in the best way.

Man can compare it a bit with school grades. If you always get sufficient or even satisfactory to good grades, you know that you get ahead with it. However, a 1.0 on the school report proves that you have arrived at the point, at least theoretically, that you can hardly beat. It is this pursuit of the optimum that is indispensable for progress. In nature, mutation and selection provide progress and optimization of living beings. In companies, we are people who try this on the basis of logical considerations.

Therefore, this article is a general guide on how to optimize profit as an entrepreneur.

Before we start with the explanations that should show us how to optimize profit, we first want to ask what we mean by profit. After all, you can generate profit in different ways.

Most people always associate profit with money. After all, money is also a universal medium of exchange. With this you can get much or, some may say objectively, others cynically, everything. So more money is an important starting point if you want to optimize profit.

In addition, there is another important currency with which you can make a profit. Although it may sound absurd in itself, because no one can save time, you can make sure that you have more time available. For this, however, you have to work through the tasks that absolutely have to be done as quickly as possible. Time efficiency is the magic word here. For example, the COVD-19 pandemic has saved many workers who now work in the home office the daily way to the office. For them, the home office is a time gain.

If you were often trafficked in the morning and afternoon as an employee, then the home office also means another profit. Because you obviously save yourself trouble and frustration. Which brings us to another win that we can optimize, namely a win on an emotional level.

On the surface, emotional gain can be equated with happiness. Of course, this means something different than the momentary happiness that one experiences, for example, at the birth of one's own child, a successful surprise or an incomparable sense pleasure. Much more is about looking at how to understand the quality of life overall. And you can also optimize the profit. Many people often equate a social advancement with an emotionally linked gain.

Although emotional optimization is generally the most important kind of gain, because it is linked to the satisfaction of our innermost desires, it can only be quantified conditionally. In addition, it should only be minor in our view, because we focus especially on those areas in which entrepreneurs, regardless of their respective ideas of individual happiness, can optimize profit.

So, after determining what kinds of profits we focus our interest on to optimize, let us now talk about potentials and methods. Because a prerequisite for profit optimization is that there is a state at all that contains added value compared to the current state. A second condition, at least as important, is that suitable methods are available to achieve the potential goals.

On the one hand, the demand for a potential to optimize profit may sound banal, if you look at it purely arithmetic. After all, numbers are known to be infinite. So you are never rich enough to exclude a further increase in the value of the previous wealth. On the other hand, there can also be more or less fixed limits for optimization. For example, a day has a limited duration. Therefore, the methods with which one wants to optimize a profit usually depend on a variety of factors. Some of these are very specific, while others are of a general nature.

However, in all these efforts, it must be noted that the effort for optimization is really worthwhile in the end. If the costs associated with profit optimization in various ways and levels are ultimately too great, then no real optimization takes place. So a cost-benefit ratio must be observed from the outset.

This inevitably involves setting priorities. Some goals may be easily achievable, so they are particularly interesting in the short term. But others may absolutely bring in more profit, even if they require more effort to implement them. And in other cases, you have to pay attention to the order so that the desired goals can unfold their optimum.

For our purposes, it is also important that we first examine in which area an entrepreneur wants to optimize his profit. Because only if you are clear about the goals for profit optimization, you can pursue a holistic approach. However, such a holistic approach is a prerequisite if the sum of the efforts is to produce a result that exceeds this sum.

Therefore, as a first step, we recommend covering all goals you want to achieve. These goals should then be associated with potentials in the respective partial aspects. This also helps to better understand the mutual interactions that can come with the realization of profits. After all, optimizing a company’s profits is a system with many variables.

In order to provide an easy-to-understand, clear introduction to the topic, we break down. On the one hand, the business aspect must be taken into account. On the other hand, tax optimizations are also possible. And thirdly, we also talk about the time factor. In doing so, we further divide between saving time, i.e. increasing efficiency over time, and the approach of the time at which a profit is best achieved because it is optimally effective.

Since the term profit is deeply rooted in economics, we first go into the methods to optimize business profit. However, there is a very rich selection of possibilities and even more literature and other media that convey this knowledge. Therefore, it is less about the reproduction of a business administration master's degree than about the emphasising of potential. In addition, we would like to point out that business profit optimization interacts with many internal and external factors. In this way, it also influences how an entrepreneur can optimize his profit at other levels.

4.1.2. Optimize Taxable Profit at Company Level

One such example is the tax that an entrepreneur has to pay on the profits of his company. In Germany, one must distinguish between the taxation of a partnership and a corporation. Depending on the amount of profit, there can be clear differences in the absolute levels of taxes on them. Therefore, in order to save business profit as far as possible from taxation, optimization in taxation must also be taken into account.

This is the purpose of tax design, for which entrepreneurs can obtain information from their tax consultants. The goals here can also be very versatile. Does an entrepreneur just want to optimize his current profit for tax purposes? Or is there a sale of the company? Perhaps it is also about company succession? In any case, specific goals require both specific solutions to optimize a profit and the inclusion of many other factors.

In addition to these situational possibilities for tax design, the profit can also be optimized for tax purposes with some basic methods. For example, a silent participation can influence the level of business tax. Also tax-advantageous is the segregation of business real estate into a tax-advantaged real estate company. In addition, care must be taken that no division of operations leads to avoidable taxation. However, the optimization of the amount of the managing director salary of a GmbH shareholder is certainly the classic among these universal methods. Because this allows you to deduct as large an amount as possible as operating expense from the taxable profit.

4.1.3. Optimising commercial profits

So while an entrepreneur in most cases tries to optimize his taxable profit by making it as low as possible, perhaps even achieving that he can carry a loss, in other cases you need the highest possible profit. This is advantageous, for example, when granting loans or negotiating the sale of the company. The optimization lies in such seemingly contradictory goals, that one achieves both goals. This is possible, for example, by the right choice for the presentation of the balance sheet.

4.1.4. Optimising private income tax

Of course, this also has another goal in mind, namely to optimize the personal profit of entrepreneurs. Of course, as an entrepreneur, you also want to pay as little tax as possible on your profits. A large number of control designs are also available for this purpose. However, most are only effective in certain situations. So the application depends very much on external factors. For example, on the one hand, there may be a foreign reference that affects the taxation law of the Federal Republic of Germany and other countries.

4.1.5. Time-dependent profit optimization

4.1.5.1 Respect deadlines

One way to optimize a profit may be to meet certain deadlines. In particular, blocking periods should be used here. However, this involves thorough planning, with the help of which taxation is as favourable as possible. Examples of this are the blocking periods after conversions of companies. There are also blocking periods for private income tax, such as the tax-free sale of real estate.

Another way to optimize profit via deadlines is the timely transfer of taxes. Although this is obvious, the appropriate control mechanism is often lacking to ensure this at all times. This also applies to the observance of deadlines for filing tax returns, which leads to an avoidable tax ancillary service if the deadline is exceeded.

4.1.5.2. Thesauration as a means of profit optimization

Furthermore, you can optimize a profit by selectively adjusting the optimal time. So the possibility to save profits within a company may help here. On the one hand, it can raise enough equity for the acquisition of assets without having to resort to expensive debt financing. On the other hand, you can use the profit distribution from a profit carried forward over the years as a retirement provision. The advantage here is that the amount of profit distributed annually is always at the most favorable personal tax rate possible. Another possibility exists if the company is sold tax-advantageously in the later course of life (§ 16 EStG). Because in this case, particularly favorable tax relief waves, which then also affect the profit carried forwards sold with the company.

4.1.5.3. Tax optimization with regard to inheritance and donation

One last point, which basically concerns both the profit optimization of an entrepreneur and the tax-advantageous treatment of his descendants and his old-age pension, can be used by means of the usufruct right. Here, too, the temporal dimension has a prominent significance. Because the tax is related to the period of time that is likely to be available for use of reserved assets. Thus, however, it depends on the respective age of the transmitting person.

Finally, we want to briefly discuss the aspect of time gain. In a company, a lot often depends on how the work processes are organized. Of course, it also depends on the qualifications of the employees. However, without a correspondingly optimized design of the individual processes, this often has no great impact on the overall result. On the contrary: if the processes in a company are anything but optimal, this usually leads to the departure of the most qualified employees. This also includes the principle of avoiding errors that require subsequent correction. The correction can cost both time and money.

Digitalization offers an option that allows entrepreneurs to realize a temporal profit. The more processes are automated, the less time you have to invest in their processing. For example, this is particularly evident in the digitalization of financial accounting. If you had to submit the documents for recording all tax-relevant bookings in physical form to the supervising tax consultancy office earlier, this is now possible online. So you save either postage fees or just the time it took to bring the swing folder with the documents. In addition, there is a significantly lower risk of incorrect bookings in the digital preparation of financial accounting. And companies also benefit from the digitalization of financial accounting when it comes to dunning. Here, too, you can optimize the temporal gain.

Finally, we come to another important question: when is the right time to optimize a profit? In part, we have already briefly addressed this aspect when we discussed time-dependent profit optimization. But we mean a general approach.

The best time to optimize a profit is actually always in advance. Even before starting a company, you should consider all other areas in which you can optimize, in addition to the business aspects. Of course, this also includes tax optimization. For example, it may make sense to set up the company abroad instead of in Germany. However, if the company is to trade in Germany, then the correct legal form is decisive in order to optimize the later profit. However, this also raises the question of financing the establishment of a company. Because here too you can use various advantages.

The best way to optimize everything right from the start may be self-evident. However, the situation must still be monitored on an ongoing basis. After all, everything is subject to changes that you may have to react to in order to optimize the profit. A good example of this is the digitalization of financial accounting.

But also legislative changes can have consequences for which one should be prepared. You need information that is reliable and understandable, describes all the consequences and of course should be easily available. Optimizing a profit therefore also means knowing a reliable partner at your side, who knows exactly the special aspects that influence their profit.

As a modern tax consultancy, we are familiar with all aspects of tax law. In addition, thanks to digitalization, such as via DATEV companies online, we work highly efficiently. In addition, we keep you informed, especially in the event of pending changes in the law. And of course you benefit from our customized tax design models. Whether your company or you personally should benefit from our diverse expertise, we support you in optimizing your profit.