Financial planning for your business in a volatile economic climate

If there is one thing that business owners have learnt in the past few years is that the world doesnt stand still and that volatile economic conditions that are out of your control can surface at any time and derail your plans or your business.

With a looming UK recession, a cost of living crisis, rising prices and the potential for a continuing volatile economy, business leaders will need to adapt their financial planning for a volatile economic climate. Traditional planning methods, budgeting and forecasting will need to be adapted and business performance monitored carefully.

In this blog, well cover our key tips for financial and operational planning that could help your business not only thrive but survive.

1. Align the business around high-quality revenue

One of the first steps you can take is look at your revenue streams. Look for high-quality revenue currently in your business and plan how you can retain this revenue and build to attract more revenue of this quality.

High quality revenue may be revenue that is from high profit margin products, services or clients that give your recurring work.

If you havent already, try and identify what your ideal profitable clients look like. Look at your most profitable, reliable, engaged clients and identifying similarities between them.

2. Use technology

Online accounting software can help with your planning process by providing real-time information, track key performance indicators, track capital expenditures, scenario analysis, actual performance against budget, working capital, and costs in your business.

Technology can also provide you with numerous ways to save money and increase profits, including things like online selling and marketing.

3. Use scenario analysis & planning to predict changes and outcomes

Scenario planning allows you to consider different scenarios, including worse case scenarios and proactively plan for how you will deal with them. This type of scenario planning will allow you to better prepare for changes in your companys key activities and resources. It will help you prepare for a multitude of different scenarios such as worst-case scenarios, best-case scenarios, etc. to allow your business to take proactive planning measures to achieve its goals as economic conditions worsen or improve.

4. Do rolling forecasts

Rolling forecasts rather than ad hoc or fixed term forecasts will help you and your company to respond effectively and quickly to any market changes. Business owners can use historical data to predict future financials to project results for budgets, expenses, and other financials based on the companys past results.

5. Lower costs

Rising costs from supply chains, raw materials, wages, energy bills and high inflation can present smaller businesses with significant challenges. It can be easy to switch focus from growing your business to simply surviving when faced with economic uncertainty. However, business leaders need to find a balance between surviving and continuing to grow their businesses in uncertain times.

Lowering your costs can be an option to keep profitability up during a volatile economy. However, be careful not to cut too much as this may damage your future growth. For example cutting investment in sales and marketing may affect your future profits and pipeline of work.

Identifying cost savings can include areas such as inventory control, building customer loyalty, and even pooling resources with other companies or business owners.

You could look to cut costs in the following ways:

6. Increase prices

Dont be afraid to raise your prices, however, look at potentially raising the price of your bestselling products and services initially, as these may be able to sustain an increase.

It may be wise to not increase prices across the board without researching their impact, as higher prices may alienate some customers and lead to lost business.

7. Manage your cash flow

Cash flow is the life blood of all businesses. Its the movement of money in and out of your business. Not managing cash flow can affect your ability to pay bills, purchase stock, or invest in growth.

Ideas to manage cash flow include:

• Invoice as soon as you’ve delivered a service or product.
• Ensure invoices are correct.
• Agree on payment terms in advance.
• Consider leasing equipment.
• Keep your accounts accurate and up to date.
• Keep a cash reserve, if possible, to cover rising costs or periods of low business.

8. Debt financing

Debt financing is a popular way for smaller businesses to gain a cash injection and can help them through challenging periods. This could be in the form of a bank loan, asset based lending, invoice financing, leasing or hire purchase, peer to peer lending or overdrafts and credit cards. However, this debt should be carefully managed.

9. Seek advice

Use your accountant and your bank to help you to better plan, budget, forecast and offer you advice. Your accountant will be able to give you tax advice and work with you to look at tax savings and reliefs available. They can also help to negotiate things like Time To Pay arrangements with HMRC if you cant pay your tax bill. The key is to not bury your head in the sand and seek advice early to help you with better financial planning.

10. Tax relief for small businesses

Ensure you are making use of all tax relief and incentives offered. Seek advice from an accountant. They may see ways of reducing your tax liability. Theyll help you identify tax relief for both you and your business. Examples of tax relief for businesses can are:

• Small Business Rate Relief
• Annual Investment Allowance
• Employment Allowance
• First Year Allowances
• R&D Tax Relief

Summary

When there is a volatile climate and market fluctuations, it can be stressful being a business owner. Being agile and responsive to volatile markets can help your business to survive and thrive.

In todays environment, smaller businesses facing financial challenges can often be more agile, flexible, and quicker to embrace new, more productive ways of working than larger businesses.

Traditional budgeting and business models may hold you back. Having a flexible approach, adapting your budget process, forecasting, cost control and cash flow management can be key.

Finance leaders and business owners need to focus on risk management whilst continuing to look for market opportunities. As the business conditions improve, you need to be ready to continue to look at ways to improve and grow your business.

If you need further help or advice on surviving challenging times, dns accountants can help. Contact us today for by calling our team on 03300 886 686, or email on enquiry@dnsaccountants.co.uk.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.