Director of Duncan & Toplis, Newark writes about businesses planning for challenging year ahead
January is traditionally the time we make New Year resolutions and plan for the year ahead — writes Simon Shaw, a director of Duncan & Toplis.
Businesses will also be setting plans for the coming year and beyond at a time which continues to be challenging for many.
It is recognised that 2023 will be a difficult year for business with continuing inflation and a reduction in consumer spending, both of which are likely to mean local businesses will have to take a close look at their plans and make the necessary changes.
We have all seen the large increases in costs during 2022, many of which have outstripped the official rate of inflation.
Although the rate of inflation is expected to reduce during the year and some costs may stabilise or even reduce, there is no doubt higher costs will be with us for some time.
Businesses will have to continue to strike a careful balance between adjusting their prices to reflect their increased costs, and maintaining the right level of sales at the correct price.
It is now more important than ever that businesses have cash flow and profit forecasts in place for at least the following twelve months.
This will enable them to understand what needs to be achieved and where there might be bumps in the road.
These forecasts must be regularly updated to reflect changes throughout the year to ensure they provide the business owner with a clear picture of the expected outlook.
Having various versions of the same forecasts with “what if” scenarios to account for such things as changes in costs, sales activity etc. will put the business in a stronger position if the unexpected occurs.
Just as important as planning for the future is having up to date records of past performance so profitability can be monitored and used to inform future forecasts.
As part of this monitoring and forecasting it is important business owners focus on profitability.
With the combination of increased costs and pressure on consumer and other businesses spending it may be that certain products or services are no longer profitable, or are not returning the level of profit for the effort needed.
It can sometimes take a brave decision to stop doing something, but this will enable a focus on the more profitable parts of the business and therefore secure the overall success for themselves and their customers.
We mustn’t forget that increases in corporation tax from March this year, together with previous increases in tax on dividends, mean that companies are likely to have to generate increased profits to provide the same return for the business owners.
One thing that remains certain is that cash in the business will continue to be king. Having the right level of cash will not only enable businesses to weather any unexpected storms but also invest as opportunities arise.
An important part of managing cash flow is to ensure the correct payment terms are established with both customers and suppliers.
The start of the year is a great time to review both and have honest conversations, so all involved understand what is expected and the consequences of these terms not being met.
Unfortunately, in the current economic climate not all businesses will be able to continue profitably and with sufficient cash to pay their debts.
This could be for a variety of reasons including a downturn in sales, increases in cost which can’t be passed on, or a customer failing to pay.
It is important that business owners have the up to date information and forecasts to recognising these signs and take the appropriate advice quickly.
Although 2023 may be a challenging year for many I’m confident that the local entrepreneurial spirit supported by the right advice will enable many businesses to continue trading profitably to provide a vibrant local business economy.
