Survival of the fittest

With Brexit and the possibility of a ‘no deal’ still on the horizon, the need for financial planning and forecasting has never been greater, explains Debbie Boulton of Richardson Swift.

Good planning and forecasting can help reduce your business risk by assessing what its financial ‘pinch points’ might be in the future. And, as well as helping to keep your business on track, plans and forecasts are essential for banks and potential investors if you’re looking to raise finance.

What is financial planning and forecasting?

Financial planning is simply looking at your business for the year ahead, and beyond, to set out its strategic goals and objectives and work out how these will be achieved from a financial perspective.

A forecast is an estimate of your future income and expenses, which allows you to run different scenarios to see what the impact on your business might be. Say, for example, your debtors took 60 days, instead of 30, to pay you. Would you have a cash buffer to cope with this?

Top tips to get started

1. All businesses can forecast – business owners tend to think they must have visibility of future sales income to produce forecasts, but this simply isn’t true. If you know what your costs are and what you need out of the business, you can calculate what minimum sales are needed to cover this. Anything on top is then a bonus.

2. Set goals - decide on your objectives for the year ahead and then consider what cash is required to achieve these. Your objective may be something specific, such as starting to export to the US, or something more general, such as grow sales by 10%. Goals may also be non-sales related, such as building cash reserves, or investing in new machinery.

3. Be realistic – avoid predicting future sales with too much growth or expecting debtors to pay more quickly than they actually do. This is especially relevant to early stage start-ups, and companies looking for investment, in terms of their ability to repay debts.

4. Start with ‘easy’ numbers first - once you know your goals, look at your financial reports for the last year and use these as a starting point for the year ahead. Start with the ‘easy’ numbers first, including fixed costs that won’t change and payroll costs based on current staff numbers. Then look at the more complex figures in detail, e.g. the costs of new staff (recruitment costs, salaries, pension costs and IT costs, etc.). Gradually build your forecast until you have a full picture for the year ahead.

5. Irregular costs - don’t forget to factor in irregular costs, such as corporation tax, VAT and self-assessment payments, which can often catch businesses out.

6. Get the basics in place - ideally, you should have a forecast profit and loss account, balance sheet and cash flow so you can see how the profit, assets/debt and cash will look across the coming year.

7. Seek expert support - whilst business owners often prepare spreadsheet cash flow forecasts themselves, producing a three-tier planning and forecasting report, as outlined above, can be really complicated and should be undertaken by your accounts team/accountant.

8. Review your forecasts regularly - once your forecasts are prepared, use them! Compare your monthly/quarterly results against what your forecasts show, and look at the variances and why these are occurring. By reviewing these throughout the year, you can update your forecasts and/or make changes to address any negative trends.

9. Invest in technology - cloud accounting packages, such as Futrli, can produce and update forecasts with real-time financial data, so you can see exactly how your business is performing against the plan.

10. Planning for Brexit – whatever your business, the latest Brexit study makes for grim reading, with GDP forecast to be up to 8% lower than currently predicted in 15 years’ time.* So, if you haven’t considered the potential financial impact of Brexit yet, there’s a good window of opportunity ahead of March 2019 and the UK’s planned departure from the EU, to plan for the likely scenarios.

Our approach

We believe the process of planning and forecasting should be as straightforward as possible, so all we ask for is an hour of your time to run through a basic financial questionnaire. From this, we can prepare a comprehensive set of draft financial plans and forecasts for review, before we agree a final version.

To find out more, please contact Debbie Boulton on 01225 325580, or email db@richardsonswift.co.uk.

*Figure quoted from a leaked government Brexit study examining the potential impact on the UK economy following a no deal outcome (source: BBC News)