Starting up in Business – Financial Forecasts

An important part of the Business Plan is the financial forecasts. Of course, as an accountant I’m bound to say that, but it doesn’t make it any less true.  Appropriate forecasts will enable you to set the targets for the whole business. Points to cover can be broken down into distinct areas:

Sales Revenue

• Take into account current turnover and any potential increase
• Make full use of marketing survey data
• Convert forecasts into targets

Expenditure

To estimate the expenditure that will be incurred in running the business:

• Identify and estimate fixed costs item by item
• Calculate variable costs on the basis of projected revenues

Profits

You will need to forecast the level of anticipated profits from the assumptions made to date about the business. Because nothing is certain in business, it is vital to apply a sensitivity analysis to the assumptions to identify which ones are critical to success. This means testing what happens if sales are less, or expenses are more, and how much an item can change by before it totally changes the picture. Then you can carefully plan your reactions to possible scenarios, such as:

• How will you respond if a competitor starts a price war?
• Could your production facilities cope with a large order?
• What would be the effect on your cashflow?

Funding Review

A review of funding provisions for the business in the light of the capital and cashflow requirements will include:

• Identifying assets and liabilities, including money owed to you and stocks held
• Drawing up balance sheets based on the forecasts
• Identifying how much of the cash needed can be financed from profits or trade creditors. The remainder needs to be provided either by the proprietors or by borrowing(s)

It’s important to review your forecasts on a regular basis, and monitor the key things that matter if you are to reach your goals you set for your business, not just when starting up but throughout the business cycle, and particularly when faced with a period of growth.

Lucentum can help you succeed in business and in preparing financial forecasts for a Business Plan.  Fortunately we are a member of the ICAEW Business Advice Service and so can offer you a free first meeting. Please contact our office on 01245 216800 or email info@lucentum.co.uk if you would like to find out more.

Lucentum is a forward thinking accountancy business, based in Chelmsford, Essex. We offer a wide range of services, including for start-up businesses. www.lucentum.co.uk

Starting up in Business – What should your Business Plan look like?

So you’ve decided you need a business plan, but what do you include in it? Here’s a brief guide:

Define your business

Examine your business ideas critically and check these against your initial perception of the marketplace. Identify the key features of your business.

•  Analyse its strengths and weaknesses
•  Consider opportunities open to you, and the challenges you face

Scanning the market

The marketplace is the key to the success of your business. You should review the market for your goods or services, and the competition you face.

• Use market segmentation to identify potential customers
• Use market survey methods to characterise your customers and their needs 

Identify your niche

Only the largest businesses can afford to provide an overall service to all customers. Most companies have to choose between offering general services to a restricted range of customers, or offering a niche or specialist service. How can you best achieve profits?

You could, for example, restrict customers by geographical area, or by some other classification within a wider area.

• Identify the features of your key goods or services
• Identify the advantages you have over competitors
• Identify your ‘USP’ (your unique selling proposition)

People profile

Now you can review the skills and knowledge needed to run the business. Compare this list with the abilities of the people currently working for you.

If certain skills or knowledge are lacking, consider whether training would be appropriate. Remember, it is often better to buy in certain skills such as accountancy and marketing as and when they are needed. Other skills, such as selling and production, are needed constantly and so should be available in‑house.

Prices and profits

Identify the relationship between prices and profits. Most businesses price low to maintain turnover, but the additional profits from higher margins can often outweigh any loss of turnover. Decide on the impact of competitors’ pricing policies.

Marketing strategy

Marketing is deciding how best to reach customers, maintain marketplace intelligence, secure additional customers, and generate further business.

• Determine how you will attract potential customers
• Design the message and the medium required to evoke a response
• Prepare staff to deliver outstanding customer service, through training if necessary
• Perhaps prepare a separate, more detailed, marketing plan

Capital expenditure and liquidity

Having defined the business you are aiming for, you now need to consider the financial resources you will require. It is easier to arrange borrowing in advance rather than approach your bank manager when you have exceeded your overdraft limit!

Review the capital expenditure needs of the business and alternative ways of meeting this expenditure while keeping enough money in the bank for day to day expenses of the business.

Financial forecasting

We will be pleased to put together financial forecasts from your business plan. We will cover this in more detail in our next article.

Once the plan has been prepared

To achieve the best results, you will need  Management Information  to monitor your performance against the plan. This will give you an early warning for when you should reconsider your actions in response to market developments. Consider the key information you need to manage the business, and hence the systems that will provide this:

• Plan to monitor revenues and costs
• Plan to manage cashflow
• Plan to manage people

You will need to decide when to update the plan and how this should be done:

• Short‑term problems may require immediate revisions
• The year end review of results will help in amending the plan
• Don’t forget to review the marketplace from time to time

This is a never‑ending process. Businesses evolve and so should your plan. Plans should be designed to enable you to forecast the future, to help you stay ahead of the game and to assist you in realising your full potential. Don’t just leave it to chance – knowing where you want to get to will make it easier to get there.

Lucentum is a forward thinking accountancy business, based in Chelmsford, Essex. We offer a wide range of services, including financial forecasting. www.lucentum.co.uk

Starting up in Business – Planning to fail?

So you’ve decided you’re ready to start your own business, what’s the next step? As the saying goes ‘failing to plan is planning to fail’. You need a Business Plan.

Planning is:

•  Taking prudent, calculated risks rather than blindly reacting to events
•  Making the best use of available resources
•  Setting a path to achieve the lifestyle you want

All businesses plan to some extent, but the planning is often informal and ill defined. You should always set out your plans in writing, however roughly, because this forces you to define your ideas clearly. Writing things down also provides accountability – if it’s there in black and white you can’t ignore it.

Planning to plan

 Consider: 

• What information you need to assemble
• The initial decisions to be made
• The sales and marketing options open to you

Enlisting support

Assess the expertise and assistance you already have, and decide what additional help you will need to prepare your plan and harness your resources effectively. For example, you might need accountancy, information technology/internet or marketing assistance.

So what are the steps to producing an effective Business Plan? They are listed here and we’ll look at these in more detail in our next blog.

• Define your business
• Scanning the market
• Identify your niche
• People profile
• Prices and profits
• Marketing strategy
• Capital expenditure and liquidity
• Financial forecasting

Businesses evolve and so should your plan. Don’t assume that just because you’re not starting a new business you don’t need to prepare a Business Plan. Plans should be designed to enable you to forecast the future, to help you stay ahead of the game and to assist you in realising your full potential, whatever the stage of your business. They will need to be reviewed and revised.

Lucentum can help you succeed in business and in preparing a Business Plan.  Fortunately we are a member of the ICAEW Business Advice Service and so can offer you a free first meeting. Please contact our office on 01245 216800 or email info@lucentum.co.uk if you would like to find out more.

Lucentum is a forward thinking accountancy business, based in Chelmsford, Essex. We offer a wide range of services, including for start-up businesses. www.lucentum.co.uk

Starting Up in Business – Are you ready?

If you are thinking of running your own business, a good place to start is by discussing your plans with someone experienced that can give you the help you need.

 The more forethought you can give to the job of running your business, the more likely you are to succeed.

Here are some of the questions you should consider before you start:

• Are you the sort of person who can succeed in business?
• Have you any funds you can put into the business?
• Are you familiar with the legal requirements that will be placed on you as a business proprietor?
• Have you considered how much you will earn during your first year?
• Do you need help raising finance for your business?
• After business expenses, including taxation and national insurance, have you estimated what your salary and profit could be?
• Have you considered how you can minimise your tax liability so that you keep more of what you earn?
• Have you considered how technology can benefit your business?
• Have you decided how the internet can be used to your advantage?

There are many other matters you need to consider both before you go into business and during your all-important first year.

With careful planning and the right advice you could earn more and pay less in tax.

What help do you need?

As accountants, we at Lucentum are well placed to provide the help a start-up business needs. We believe in a personal approach to all our clients, and provide a creative and positive service.

We can assist you in a variety of ways:

• Preparing your accounts - promptly after the year-end. Some clients with growing businesses have management accounts. These enable you to check regularly on your business growth, trends, and profitability.
• Tax planning – to minimise your tax liabilities.
• Cash and profit forecasts – ‘moneymaps’ to help you forecast your future business performance.
• Financial planning – helping you plan both your business and personal finances.
• Bookkeeping – our computerised bookkeeping services enable you to spend more time running your business.

These are only a few of the ways we can help you succeed in business.  Fortunately we are a member of the ICAEW Business Advice Service and so can offer you a free first meeting. Please contact our office on 01245 216800 or email info@lucentum.co.uk if you would like to find out more.

Lucentum is a forward thinking accountancy business, based in Chelmsford, Essex. We offer a wide range of services, including for start-up businesses. www.lucentum.co.uk

Cutting Cost without Cutting Staff

Redundancy should be a last resort and not a knee jerk reaction. As a small to medium sized company, how can you cut cost or add value to the bottom line without cutting staff?
Lucentum HR Consultant, Fiona Cowie offers some valuable advice.

Small Firms are “firing” rather than “hiring” according to recent research conducted by the Federation of Small Businesses. The survey indicated that 5.8% more FSB members intended to lay off staff than recruit them over the next 3 months compared with a net figure of 0.5% intending to recruit staff when asked 3 months ago.

This trend suggests a worrying indication that confidence levels in small businesses are extremely low and that business owners and managers are struggling with key decisions over how to control ever increasing overhead costs.

The cost of employing people is often one of the biggest overheads in a business and cutting staff may seem like the only option when significant cost control is required. However, there are some simple things that you can do to help to avoid the dreaded redundancy situation.

Firstly, make sure that your employees are actually doing the job they are paid to do! Managing your staff to ensure that they are working in the most effective and efficient way can help to add value to your bottom line. Happy and content employees will be more productive and will value the time investment you are giving to them.

Do your employees take regular sick days off work? Employee absence is a significant cost to a business. Research shows that the most successful tools in reducing sickness absence are early intervention by managers and good communication. This can be as simple as having routine back to work interviews after an employee has been off sick and a clear policy covering the company’s stance on sickness absence. To manage absence effectively, you also need to create an environment where employees do not wake up and feel like they don’t want to go to work!

If you really think redundancy is the only course of action, you must consider the indirect costs of redundancy. There is a significant effect on the employees who are left behind that is often overlooked and which generally results in higher staff turnover and a reduction in staff productivity. Both of which could end up costing you more over the longer term. Also, what happens if the economic conditions improve and you find you need to hire someone in again quite quickly.

If you are struggling to understand your staff costs, call us to discuss some simple steps you can take to add value to your business and hopefully avoid having to cut your staff.

Fiona Cowie HR Consultant at Lucentum

Lucentum are an Essex based firm of Chartered Accountants providing a range of accountancy and tax planning services, including Pragmatic HR Solutions. www.lucentum.co.uk
If you would like your business to have a free healthcheck please contact Fiona Cowie on 01245 216800