The Credit Crunch V: Business planning

8 August 2008

While the energies of many businesses are, understandably, being consumed by the demands of coping with the present difficulties assailing the economy, an eye should also be kept firmly on the future.

Good, intelligent forward planning is as important to coping with a tough trading environment as is anticipating week-to-week and month-to-month issues.

Business planning

By planning for the future – particularly if it is an uncertain one – a business can focus on how best to boost profit margins and to manage costs.

Planning enables a business to identify potential problems before they arrive, to highlight areas where improvement can be made and to gather the financial information needed to make decisions.

It may be an idea to produce a plan once a year. Among other things, the plan should detail aims for the coming year, any possible problems, any changes to the way the business operates, an assessment of the staff and their skill levels, a financial forecast, and areas where investment is needed.

In doing so the business will be able to determine its expenditure (sales, marketing, product or service development may need adjustments of investment) and to calculate its budgets for the next 12 months.

Business budgeting

A business budget will set out exactly where a business needs to, or can afford to, spend its money.

The budget must be realistic; that is, based on the income that the business will generate and the sums, after costs have been taken into account, available for fulfilling its plans. For this reason, it must include the estimated sales for the period that is being planned for as well as overheads, variable costs, capital costs and, from these, profit margins.

Once the budget has been drawn up, it affords the opportunity to investigate whether any of the costs can be reduced or better managed.

Any inconsistencies in the budget will highlight possible problem areas that may arise. And by reviewing the budget on a monthly basis, a business can compare the figures with its actual income and expenditure.

Household budgets

What is good for business is equally good for households. Both, after all, experience the vagaries of income and expenditure, so setting down in writing a personal budget plan for the year can be just as beneficial.

If you would like professional help and guidance in drawing up your business budgets, or those for your own personal finances, please don’t hesitate to contact us.