Owning a business can often feel like being on a treadmill. Some days it’s difficult enough to get through all the items on your ‘to do’ list. However, setting time aside to plan for all eventualities and shore up defences not only works wonders for your peace of mind but also helps ensure you’re prepared for any challenges that may lie ahead.
Risk assess
Get a sheet of paper and do an informal risk assessment. On one side, list your potential areas of business vulnerability: What happens if you’re sick? Do you rely on one key customer? What happens if you lose their custom or they can’t or won’t pay you? What happens if you lose a key member of staff or experience technical failure? Can you foresee any factors that may lead to a change in demand for your product or service?
Then, on the other side, list what you might be able to do to mitigate the risks you’ve identified: What are you able to control? And what is beyond your control? Are there any ‘low hanging fruit’ strategies that you can easily implement, such as putting key person insurance in place?
Have a plan
Set a budget for the year ahead. Set sales targets that are ambitious but achievable.
Be clear about what you need to make your plan workable: What resources will you need? Decide whether you want to share your plan with your entire team or just a few key people.
Where possible, commit to costs where you’re not tied into a contract and can easily up or down scale according to demand. Fortunately, market trends such as pop-up culture, hot desking and a rise in flexible working make this easier to achieve.
Be rigorous in questioning and testing yourself: How will you make yourself accountable? How often will you review your plan and what will happen if you need to, or are forced to, change track?
Manage what you measure
Identify five financial and five non-financial measures that will, if you keep on track, signal that your business is in good shape.
Measuring your financial goals is best achieved by ensuring that record keeping is as up to date as possible. If it’s something you don’t do already, adopt it urgently as a new habit. Automated cloud based bookkeeping has made it easier and cheaper than ever before to keep on top of.
Obvious financial goals to watch are sales, but don’t allow yourself to be waylaid by the headline figures. Keep an eye on the cost of your sales. Are the sales worth having or is the cost associated with some of your sales too high? Identifying cost, such as spend on wages, as a percentage of sales is vital, as is benchmarking this exercise against reliable industry data.
Non-financial measures may initially appear harder to quantify. For example, how do you gauge customer satisfaction?
Be wary of red herrings. “Likes” on Instagram don’t necessarily translate into a healthy bottom line – they can just mean you take a good picture! Although engagement such as sharing and commenting can be a better yardstick, asking customers to take part in a customer satisfaction survey and pairing this with gaining an understanding of your Net Promoter Score (NPS)* will prove more illuminating.
*NPS is a management tool that works as a measure of customer experience andcan be used to predict business growth.
Build up cash reserves
Cash is king. And although building up cash reserves can be easier said than done, you should aim to have a cash reserve that is equal to at least three, and ideally six, months of business expenses.
Factor savings into a cash reserve account as part of your forecast. Some of the most successful businesses we encounter do this regularly – for tax, rainy days’ contingency planning and peace of mind. However, if you have business debt it can become more of a balancing act – you have to get the mix right and be mindful that it may not make sense to pay high rates of interest if you have cash reserves. In the same vein, don’t take out more than your business can afford to pay you. Those that do, often find themselves struggling to settle tax liabilities and other creditors further down the line.
Make sure you take advantage of all the reliefs that are available to you. Are you getting tax relief on all your business expenses? Are you taking advantage of the Employers’ Allowance? Could you be making a claim for an R&D Tax Credit? Less formally, review the service you receive from your suppliers. Could you negotiate supplier discounts for prompt payment, buying in bulk or simply shopping around? Don’t be afraid to ask, particularly if you’re a long-standing customer or are considering changing supplier.
Surround yourself with a strong network
Building a strong network that encompasses your team, your suppliers, your clients, and the wider business community not only makes doing business more enjoyable, it can also make all the difference when the going gets tough. There’s an old Chinese proverb that that refers to “digging a well before you’re thirsty,” a reminder, if ever there was one, to maintain, cultivate and nurture your network continuously. And if you do come up against a challenge, don’t be afraid to ask for help. You’ll be surprised at how powerful a “Can you help me?” can be.
We can help…
Want to make the most of the time you’re going to spend contingency planning? Give us a call or drop us a line and we’d more than happy to help you achieve that all-important financial resilience for the year ahead.