More challenges to our financial plans last week as the Russian incursion into Ukraine has boosted the price of oil and gas and adds a new layer of uncertainty to global economic activity in the coming year.
How will this affect our current business plans?
There is a tendency to see a business plan as fixed in stone; something that you have to aspire to come what may. Of course, this is completely unrealistic. Consider, for example, the plight of business owners in the entertainment and hospitality sectors during the past two years.
What business owners may benefit from is a flexible budgeting approach.
Why flexible budgets?
To be of use to your business, plans need to be flexible. And there are sound commercial reasons for this approach. For example, by reconsidering your plans as external challenges arise, you may decrease or perhaps eliminate the down-side risks to:
- Overhead cost increases
- Sales volume
- Sales price sensitivity
- Staffing issues
- Investment decisions
- Tax planning
- Business exit plans
Part of monthly management accounts review process
Experience of the past two years, more recent challenges to global trade, rising inflation and forthcoming company tax increases all point to the need to adopt a more dynamic approach to monitoring our financial plans.
We now recommend consideration of a walk-through review of critical aspects of your business plans on a monthly or quarterly basis to ensure that remedial changes can be made before any effects on cashflow, profitability or solvency become critical.
It may well be that this short review will endorse a ‘steady as you go’ approach. But this is not wasted effort. As recent disruption has revealed, setting aside time to consider the wider context of challenges to your business plans will catch those downside risks before they become terminal events.
Please call if you would like to discuss the adoption of this strategy for your business.