All businesses need to know where they are going and how to get there. If you’re planning for growth, the key to success is carefully understanding your numbers and resources.
Cashflow planning is essential. On the most basic level, work out what is coming in and what is going out. With rising inflation affecting personal budgets as well as the business, your business will need to give you a higher dividend just to stand still. If you want to earn more, this must be even higher.
What if you have a large expense to fund personally? Finance for this has to come from your business, and here cashflow planning is key. Any cashflow planning must factor in inflation, your personal circumstances and your plans for your business.
Here’s an example. You want to draw an additional £30k per year in dividends to fund private education for your two children.
What do you need your business to bring in, in order to release this amount? If you are a higher rate taxpayer, your dividend must be an additional £46k before tax.
To take £46k out of the business it must generate £60k pre-corporation tax. If you manufacture a product with a 40% profit margin, you need to generate £150k more sales; £150k to take £30k from the business. This demonstrates perfectly the need for cashflow planning and running the numbers, and it’s just as important whether you are a sole trader or running a multi-million pound company.
Add to this the need to plan for resources. If you plan for growth, you must plan for staffing. To make an extra £150k in sales, do you need more staff to deal with this upturn in business? Can your staff do more, do you need to recruit, or can you upskill your existing team?
Look at your other resources. Do you need new equipment to keep up with demand? Maybe you even need bigger premises?
None of this should be daunting, but without support it can seem so. At Optimum, we act as a sounding board, and help by giving you a straightforward, easy to understand forecast, so you have all the information you need to make the decision that’s right for you.
