No matter what the size of your business, budgeting should go hand in hand with the strategic planning process. Just as the overarching business strategy and achievable objectives need to be defined before you embark on another year of operation, a separate financial plan allows the organisation to keep within specified financial parameters and monitor progress along the way.
As well as allowing you to control your finances and cashflow within all areas of the business, detailed analysis of your financial position can also provide your company with credibility when securing additional finance, new partners or attracting investors.
Challenges facing businesses in 2019
As we head towards 2019, there are a number of challenges facing businesses embarking on budget planning. With no certainty at the present time as to whether the UK will leave the European Union in March with a pre-agreed deal, we head into a period of volatility. Business seniors report that it is difficult to plan as there is a lack of information and too many unknowns. Added to that we are also witnessing complacency in clients making decisions such as signing up to new fixed-term contracts.
Yet this makes it more important than ever to prepare well. Brexit has the potential to impact most business costs, from energy and telecoms to insurance, business supplies and staffing, so thorough budgeting can highlight any vulnerabilities and allow you to take appropriate steps to mitigate risk. The effect on businesses of legislative change following Brexit will also need to be managed by ensuring that the appropriate resource and infrastructure is introduced or investments in new technology and metering are made, e.g. automated meter reading equipment (AMR).
Reality will soon bite
The reality of the situation is that, for a lot of our clients, pricing across a significant number of services and supplies they rely on will undoubtedly increase following the country’s departure from the EU. Those that trade across Europe or import materials will be affected by increased tariffs, some of which could be payable up front.
For some sectors, more complex import procedures could also see businesses needing to hold more inventory, therefore tying up working capital.
In the insurance sector, large insurance risk is offset throughout the world with Europe being a key market for re-insurance. A significant number of the major UK insurers are European-owned and therefore Brexit will have an impact on risk and ultimately, the prices businesses pay for their insurance policies. On a positive note, these are mature markets that existed before the UK’s entry into the EU and therefore will adapt quickly to the changing trading conditions.
The energy sector in focus
During 2018 we have seen a significant rise in energy costs due to the impact of government levies, pressure on generation and the volatility of sterling. The UK is reliant on Europe and European companies for its energy supply and investment in its energy infrastructure.
For those clients renewing contracts in 2018, they have seen more than 20% increases on new contracts. The energy market is at best a confusing market for clients; the headline rate in a contract is at best misleading and the total annual cost is what clients really should focus on.
How will budgeting mitigate risk?
Put simply, budgeting allows businesses to plan how to respond to any future financial crisis. Having a clear view of available resources that can be reallocated if necessary will help even out the bumpy road ahead. Budgeting can demonstrate exactly where the business stands financially and what funds are available to cope with any flux. It can also highlight where additional funds may need to be sourced.
A clear financial perspective as we move into 2019 is crucial to businesses in navigating a volatile economy. As any Finance Manager will know, budgeting provides the toolkit by which to tackle both planned and unforeseen activities and ensure the long-term success of his business.
If you would like to talk to us about how fixing your contracts can help to achieve budget certainty, please call us on 03330 433 233.