Why should I start planning and how do I do it?
Why should I start planning and how do I do it?
We need to spend time getting to know you and your business
When we start to look at planning for your business we need to start to get to know you and your business. It is a long process to understand what you want for your business and what you want to have in your own personal life. Both are linked and one will almost certainly drive the other.
We need to spend a little bit of time with you. We need to know what you want your business to look like, what you want to earn, how many hours you want to work and how involved you want to be involved with the business and the creative work. It’s important to understand what your goals are in your business and in your personal life. Being clear on these will help you to know what you are working towards.
No two businesses are the same and we need to understand what makes you unique
No two people are the same and no two businesses are the same. It is a very personal journey that you will go on. We need to make sure that we understand and know you before we can start to advise you best.
We need a base to start from
We need to start with what we know, the last years set of accounts. These need to be up to date. We will also need the current years work to be up to date as well. We need to see what you did last year so we can judge your future performance against it, we need to know when you do better to celebrate the success or to look at ways to get you on the right track.
We need to see the current years information to see how you are currently doing. We need to see what your current expenses and sales are this year, so we can start to project forward and see where you will be in the next twelve months, two years and three years.
Forecasting and planning is a process of constant review and improvement
This process of building the forecast will take time and will be a process of continuing to improve the forecast each month that we have a planning session.
What type of expenses are yours fixed, variable or mixed?
We will first look at the expenses in your business. When we look at expenses closely we will see they have a few different behaviours. They can be fixed, variable or mixed.
A fixed expense would be something like the rent on your office space, you could take on more work and it would still stay the same. You wouldn’t need to increase the money that you are paying for it.
A variable expense would be something like a software licence cost if you pay this per client, take a new client on and you will need to pay a new licence cost for that client.
A mixed cost maybe something like wages. You may be able to handle the extra work with the staff that you have, but go over a certain amount of work and you may need more help. In this case the expense behaviour would look like a step. It would go up and then stay flat for a while and then go up again.
When we are doing the planning session with you we will need to understand how each of your expenses will behave so we can predict their cost in the future.
What projects do you have planned that we can include in the sales forecast?
We would then need to look at the sales and look for trends or patterns that we can see with the sales. But a better way to predict the sales would to be actually speak to you about the clients you work for and if you have any projects that you are working on.
This would tell us if you have any income that you receive on a monthly basis or what you expect to invoice for the work that you are doing and if you are having discussions for any future work with clients.
Once we have this we can start to build up a forecast of what your sales will be like for the next twelve months, two years and three years.
The planning will show up any problems in your business that you need to fix
This planning will show if there are problems with the cashflow in your business. If there are going to be months where you will need help paying the bills, wages or taxes. Knowing this now will help you act earlier than waiting until the last minute and trying to find a solution.
When we start to look at your business in this level of detail we see a lot of important information that can help you.
Use accounting ratios to look at your business in more detail
We can use ratios to help examine the financials better in your accounts. What we mean by ratios is for instance how long does it take you to get paid for the work you have done? How does that compare to businesses similar to yours? Take too long and you may miss out on being able to use that money in your business or you may be paying interest costs whilst giving your customers and interest free loan for a number of months whilst they pay.
We can help you look at the amount of money that you may need to keep in your bank account to be in a safe position and the impact of outstanding money owed to you may have on that. Do you need to keep as much if you have invoices owed to you and they are paid on time?
Using this type of ratio analysis can help set guidelines for you to run your business better. They can help you to set safe targets for the bank balance that you keep, how quickly you chase overdue invoices and how productive the staff need to be.
Once we have the safe targets for the bank we can alert you when you are getting close or over the safe zone. If this does happen we can have a quick call to discuss if we need to act.
What parts of your business are key to your success?
When there is something so vital in your business that it can decide if it is successful or not we call it a key performance indicator (KPI). That means it is something that we need to monitor and make sure that it is always going in the right direction.
These KPIs can be financial they can be a ratio that we are going to focus on and make sure we achieve a target for that. That may be making sure that you get paid within a certain time. Or it may be looking at the performance of your staff and looking at how much money that earn you each month.
One of the main and obvious key performance indicator is net profit and sales. If the sales are gradually increasing we can presume that the business is going in the right direction. Net profit is another we want to see that this is improving each year.
These factors can be non-financial
They can be non-financial KPI’s. It could be looking at the amount of work that you have in your pipeline ready to complete. This can be very important. Making sure that you have work for you and your team to do that will eventually feed in to your bank account in paid invoices.
The quality of your team is important, they are the engine room of your business. They allow you to spend time working on building and growing your business. To do this you need a team and staff that you can trust.
These are factors that we cannot give a money value to know, but will at some point in the future have an impact on your sales and profit.
We can then start the planning process!
Once we have this we can than start to get you a plan in place to improve your business. We will highlight the areas that you need to improve and the areas that you need to monitor each month. We will have monthly meetings to monitor your progress and constantly update and improve the plan that we have for you.
How we can help?
We can help you start the process of forecasting and planning for your business. This is a process that requires a commitment of time to see the real benefits. The forecasts and plans will improve over time as we get to know you better and refine the process.
If you are ready to make a commitment to make your business better, please arrange a call to find out how we can help.