Planning for the new year/financial year
With a new year approaching now is a good time to review your business plans (or lack of them !) in readiness for the start of another year. So what should you be doing ? Below I have briefly listed some basic items that most business owners will have thought about or have plans in place for their business:-
Typically the starting point for any business owner in order to set targets (for the business and the employees), plan for resources, plan for financing, plan for sales prices and review of cost base. Usually the plan will start with the prior year’s results and be developed from there. New businesses will have a harder time predicting what sales they will achieve but this can be estimated and then revised as the months go by.
Any business plan needs to be realistic and achievable and historic results will give a good basis for this. The key items within the plan will be (a) sales, (b) cost of sales (materials/subcontractors), (c) staff costs, (d) premises costs (rent & rates/elec & gas) and (e) other overheads.
The sales forecast should include a review of prices and this will depend on what type of business you are – manufacturing businesses will need to review their input costs (i.e. direct labour, materials and overheads) to get an idea of what breakeven sales price to set whereas service businesses will be able to set based on their direct labour cost and overheads. Obviously a profit element needs to be baked into the price as well.
Once you have calculated what sales price you would like to set, is this feasible in the marketplace i.e. what are your competitors selling at, if your price is higher can you justify it with your customers on the basis of higher quality, higher service levels etc ? or does this mean that this sales stream may not be worth continuing with and your resources would be better placed switching to another of your sales streams?
Review your cost base
Do you need to change suppliers ?, have their prices continually increased to the point where competitors are now cheaper ?, is the quality of the product supplied of good standard ?, do they deliver on time ?
For your overheads a review is necessary and may provide some savings for the new year. What is actually going through your accounts and are you receiving what you pay for, for example, if you are paying a service charge to your landlord, what do you get for this ? should you be looking for a reduction in this charge ?
You are likely to have many suppliers within your overhead base so review as many as possible but obviously look at the most significant first and work your way down.
From your business plan you will be able to estimate the level of employees you will need to cope with the expected sales demand. This will then feed back into your plan in the form of employee wages and other associated costs such as travel & motor costs, subsistence and employers NIC. The business plan should also highlight if you need to invest in more equipment to achieve sales demand.
This is another key area for continually review and should be done regularly throughout the year. The business plan should be a good starting point for fixing an initial cash flow and after the cash flow forecast has been prepared this will then highlight if the business has any financing needs which could be in the form of a bank overdraft/increased overdraft, investment from the owners, bank loans, extended credit terms with suppliers or in the extreme, factoring and/or invoice discounting.
All the plans that you have should integrate with each other and form the starting point for questions within your business e.g. do we have enough employees to service the expected sales demand, can our current suppliers cope with our demands, do we need to reduce staffing in the case of an expected sales drop-off, do we have enough finance in place to cover any expected cash shortfalls, are our prices competitive but still achieve a profit for the business ?
I hope this has raised a few questions in your own minds about your business and its needs and good luck for the new year, let’s get planning !