When business owners think about improving profit, they usually think bigger.

⚡ Winning more clients.

⚡Increasing prices.

⚡Selling more.

But sometimes improving profitability isn't about generating more income at all.

It's about making sure you're not absorbing costs that should be sitting on a client invoice.

And that's exactly where many businesses are quietly losing money.

Not through bad pricing, not through overspending, but through expenses they've paid on behalf of a client that never made it onto an invoice.

A train ticket.

A software subscription.

A stock image.

A courier charge.

Individually they don't seem significant, but collectively, they can quietly chip away at your margins month after month.

What Should You Be Recharging?

As a general rule, if you've incurred a cost specifically to deliver work for a client, it should be considered for recharging.

That could include:

• Travel

• Accommodation

• Project-specific software

• Courier costs

• Print and production

• Contractors

• Stock images

• Venue hire

Of course, it depends on what you've agreed with your client from the outset.

Some businesses build these costs into their pricing, while others invoice them separately.

The important thing is having a consistent system so nothing gets forgotten.

The Quickest Way to Spot the Problem

One of the simplest things you can do is create two nominal codes in Xero:

• Rechargeable Expenses Income

• Rechargeable Expenses Costs (under Direct Costs)

Then, when you run your Profit & Loss report, you can instantly see whether there's a gap between what you've spent and what you've billed back.

That gap tells you how much of your own profit is being used to absorb costs that should probably be sitting on a client invoice.

Sometimes it's only a small amount.

Sometimes it's thousands of pounds every month that should have been recovered.

Let Xero Do Some of the Work

One feature that's often overlooked is Xero's Billable Expenses function.

When you record an expense, you can assign it to a specific client or project.

The next time you create an invoice for that client, Xero reminds you that there's a rechargeable cost waiting to be added.

The key is to tag expenses as soon as they happen.

If you're using Dext, Apron or another receipt capture tool, make it part of your process to assign the expense to the correct client or project when you upload the receipt.

Don't wait until month end when receipts have piled up and it's much easier for things to be forgotten.

Don't Use Xero?

Don't worry.

A simple spreadsheet works just as well while you're building your systems.

Create one tab for each project and record:

• Date

• Description

• Amount

• Client

• Billed? (Yes/No)

Before every invoice goes out, review the sheet.

It's not the most sophisticated solution.

But it stops profit slipping through the cracks.

Someone Needs to Own the Process

Even the best finance systems rely on someone owning the process.

It doesn't need to be a big job.

But it does need to be somebody's job.

Decide who will:

• Review rechargeable expenses before invoices are raised.

• Monitor the rechargeable expense nominal codes each month.

• Flag when the gap between costs incurred and costs recovered starts to grow.

Small habits like these make a huge difference over time.

The Real Cost of Forgetting

Recently I worked with a founder who couldn't understand why their margins were consistently lower than expected.

The pricing was sensible, team costs were under control and the work was flowing.

But when we reviewed their rechargeable expense codes, the answer became obvious.

They were spending around £3,500 every month on project-related costs.

They were only recharging less than £800.

The remainder had quietly disappeared into overheads.

Nobody had done anything wrong.

There simply wasn't a system to catch it.

Good systems protect profit.

That's why we're such big believers in putting simple financial processes in place before businesses become bigger and more complex.

Here's where you start

You don't need to overhaul your finance function overnight.

Start with these three steps:

1. Ask your bookkeeper to create the two rechargeable expense nominal codes.

2. Turn on Xero's Billable Expenses feature and start assigning costs to projects as soon as they're incurred.

3. Decide who owns the process and make it part of your invoicing routine.

The profit is already there.

Your job isn't to work harder to earn more of it, it's to stop leaving it behind.

Could There Be Other Profit Leaks?

Rechargeable expenses are just one area where growing businesses lose money without realising it.

If you'd like to understand where else your business could improve its financial performance, take our free Business Finance Health Check.

In just five minutes you'll discover:

• What's working well.

• Where the gaps are.

• What to focus on next.

No jargon and no overwhelm.

Just practical insight to help you build a more profitable business.

Take the Business Finance Health Check here