Businesses are being advised on the best steps they can take to weather the current economic headwinds – just as further financial storms were warned of by the Bank of England.
Budgeting and forecasting are central to the preparations business leaders can make in the face of a recession.
Which is why DJH Mitten Clarke, the award-winning chartered accountancy firm based at Festival Park, Stoke-on-Trent, has provided detailed advice.
Incorporating forecasting and regularly reviewing performance against budgets should be a key part of managing a business, urges Tom Bostock, Client Services Director, pictured above.
“Once financial forecasts and budgets are in place, they become key to mapping strategy and making informed decisions over future performance and cash flow,” he says.
“It also allows you to scenario plan, acting as an early warning system, so that you can measure the effectiveness of decisions to fully understand the impact and consequences of change.”
The advice comes as the Bank of England reaffirmed its prediction that the UK was heading for recession this year – albeit shorter than first forecast – and raised its base interest rate from 3.5 per cent to 4 per cent.
Tom gives the following tips for the forecasting process:
1. Use real data to make your assumptions, using tech and cloud-based accounting software such as Xero.
2. Don’t over-egg it – be conservative in your estimations.
3. Check your actuals vs budget – keep your numbers right up to date
4. Scenario plan – it’s important to understand the cash flow impact on different scenarios giving you time to plan ahead should the worst case become a reality. This should involve forecasting different growth rates, staffing levels, cost increases, variances in debtor days or even looking at the impact of losing your biggest customer.
5. Know your numbers – understand your margins and profitability, and the key performance indicators that influence cash flow.
6. Plan for the future – it’s best practice for your business.
