A New Year ‘health check’ for your business
Whether it’s doing dry January, getting fit or having a go at ‘veganuary’, most of us make personal New Year’s resolutions. But do you do the same for your business? Are you making the most of the opportunities available to you? Given 2022 was such a difficult year for so many with the challenging climate and the onset of a recession, ensuring your business is in the best possible shape as you enter 2023 is vital. Here are five things to consider and action:
- Review your business plan
Your business plan (assuming you have one) should be a living, breathing plan, reviewed regularly and not just written when you first started your business and put quietly in a drawer! If you haven’t got a plan, now’s the time to prepare one.
A business plan will help you to focus on key priorities and set out targets against progress. It’s also an excellent time to look at contingency planning around what will happen to your business if certain factors change. For example if there is another lockdown and extended covid restrictions, how would this affect your business? The continuing challenging economic climate will place additional pressure on many firms. Planning for a variety of scenarios, being agile and prepared to diversify will help you be better placed to navigate the challenging months ahead.
A good business plan may also help you with raising finance. Banks or business angels will want to see your business plan before they invest or offer a loan or an extended line of credit.
There are plenty of proactive things you can do now to build resilience into your business plan for the challenging economy forecast in 2023 don’t leave it too late. Having a restructuring professional guide you through the process can be invaluable in getting the best outcome and will also help you understand and mitigate your risk as a director
- Go through the numbers
Review the fundamental numbers that can make or break your business. You may think this one is just for accountants, but every business owner should know them too.
If you don’t have any critical indicators in place, now’s the time to set them – for example, how many products do you need to make and at what price do you need to sell them to cover your costs on a weekly / monthly basis?
Indicators should include key financial ratios such as profit margins and sales forecasts as well as cost of sales, value per customer, conversion rates on marketing activity, or mark-up per product type. You should also be reviewing your expenses to see if these can be reduced. How do your actual numbers compare to your budget?
One crucial area to focus on is cash flow management. This is crucial to any business and is a significant reason why many companies get into difficulty, yet it’s an area that’s often neglected by business owners.
Cash flow pressures due to the well documented issues around rising interest rates, higher inflation, staff shortages, increasing energy prices, supply chain challenges and the need to repay Covid incurred debt, will put additional pressures and costs on companies. If the price of your vital commodities, staffing or services increase, or there are delays in the supply chain, what impact will this have on your business?
It’s also important to review fulfillment costs. Lot of businesses have concentrated so hard in reaching out to customers and getting products out the door that they have taken their eye off delivery costs and fulfillment. This is further exacerbated by the logistical issues the country is facing in terms of shortages and increasing costs which is leading to over trading or selling at a loss.
These challenges will put multiple added pressures on businesses in the coming months, particularly those that weren’t in robust financial health before Covid, so it’s critical businesses act early and seek advice if they are struggling now, or think cash flow may be squeezed in coming months. The earlier they act, the more options they’ll have to continue trading and recover.
Understanding the numbers that are relevant to your business gives you the chance to grow and prosper. Use technology: cloud-based accounting software such as Xero or SageOne will help you easily track revenue, expenses and bad debt. If in doubt, ask your accountant for help.
- Review your sales and marketing plans
Do you know how effective all areas of your marketing are? Linked to understanding your financials, most companies will have limited marketing budgets, so knowing which aspects of your sales and marketing activities are working and which aren’t will help you to prioritise and make the most of your budget.
For example, if you have a website, do you know where your customers are coming from and do you have a process to contact them? Social media can be very cost-effective, so are you making the most of Facebook, Twitter and LinkedIn and tracking responses? Review your branding: if you want to be viewed in a particular way, does your branding reflect that?
Do you export? Should you be looking at expanding into new markets? If not, is it something to consider? The demand for certain UK goods and services overseas continues each year, so look at exporting as an option.
- Plan your growth
Don’t just say ‘we want to grow’ this year. Put a specific number down (whether it’s 10% or even 70%) and work out a way of getting there, looking at new customers, new products and new promotional activity. For example, if you have pivoted your business during the pandemic, is this still working for you? Or do you need to think of further new ways to reach out to your customers or better ways of delivering to them?
You may need investment to do this, so think about where you may raise money: banks, angels or crowdfunding. Each of these requires a specific approach so work out how much time will be needed. And don’t forget, you’ll need a business plan to show any potential investors.
- Prioritise your wellbeing
Remember why you set up your business and make sure you allocate some time for yourself. Keeping fit, eating well and getting sufficient sleep mustn’t be neglected. Running a business can be an exhausting experience, so make sure it works for you across your whole lifestyle. Managing mental wellbeing and seeking help and advice – personally and professionally – is really important. Reach out to industry bodies, professional advisors and peers to get the best advice you can to ensure your business grows the right way. Read our tips on managing wellbeing here
James Sleight is a Director at PKF GM
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