Plan your business finance for the year ahead

It’s become almost a cliché, but the old saying from US Founding Father Benjamin Franklin “if you fail to plan – you’re planning to fail” is very true in business.

A proper plan can help keep you on track, motivate you and your staff, act as a barometer of how well or otherwise things are going and help you achieve business goals. 

For example, perhaps you have a financial goal in mind such as to increase profits by a certain amount. It may be that achieving this requires boosts in productivity such as streamlining order processing and dispatching; this could in turn signpost you to consider investing in an up to the minute stock inventory management system to refine your processes. In this instance, a set financial objective has informed how best to achieve it such as investing in stock inventory tech. 

Other ways to plan financially:

Your business plan

Assuming you have one, it should include detailed financial forecasting – so check back and see how you’ve done compared to the forecasts in your plan.

If objectives haven’t been met financially, then a review of why not and a solution as to how to improve things should be undertaken. A future goal helps provide something to aim for and measure success by, but knowing where you’ve come from is also a help.

Budget

Don’t simply rely on last years’ budget as things may have changed for you; if you haven’t hit your financial targets, your budget may need revising.

Have your accountant help in drawing up a realistic budget and ask yourself:

Are there major expenses looming we need to prepare for?

For example, you may be moving premises in the next six months, or you’ll need to invest in some equipment at a certain point in the year. Plan ahead for these and put a price tag on them. 

Do you need to recruit staff in the next year? Along with salaries don’t forget to factor in associated employment costs that can easily add another 40% on top.

Am I ready for whatever taxes we’ll be liable for?

Unexpected tax bills can really derail finances, so ensure you know what taxes you’ll be paying. Certain taxes apply to different business types and your legal set up, so understand fully what these are and budget accordingly. 

Are we going to be saving money this coming year?

 Maybe a major loan is coming to an end, or you’ve just completed an expenses audit and come up with a figure representing savings you’ll make compared to last year.

If so, factor these in as ‘extra money’ you’ll have available.

Emergency fund

Do you have an emergency fund to insure against the unexpected such as a key staff member abruptly leaving or falling ill, a natural or other disaster (such as data loss or systems failure) causing a disruption to your business?

If you do, is it large enough to cover at least three to six months of lost revenue? If you don’t have one, then it’s well worth starting an emergency fund. Either way, committing to diverting money to build or add to your fund is worth factoring into your financial planning. 

Setting goals

Overall income and profit goals are well worth setting but they need to be specific and measurable, so set proper business goals.

Saying “we want to increase revenue” is far too vague. How much? What incremental objectives such as monthly or quarterly revenue targets can be set to help check progress along the way?

Asking ‘why’ these targets are important is a powerful question and objective.

If it will lead to something specific such as, say, being able to take on more staff to free you up from routine admin work or the possibility of moving to newer premises.

Your ‘why’ could help make financial planning more meaningful and motivating.