Why cashflow and resource planning are essential for growth

All businesses need to know where they are going and, vitally, how to get there. If you’re planning for growth, the key to success is carefully understanding your numbers and resources.

We’re well into February, so now is a good time to take stock, particularly if your business has a March year end, and this means paying attention to cashflow and resource planning.

An important part of planning for the year ahead is first to make use of available allowances for this financial year. This applies to both business and personal tax planning. Where you are able, it makes sense to utilise tax free allowances, including maximising ISA savings, pension contributions, savings allowance and dividend allowance.

Cashflow planning is essential. On the most basic level, work out what is coming in and what is going out. Factor into this, too, the impact Covid business support may have. For example, you may have a higher than usual tax bill because of grants you claimed.

With inflation rising, your business will need to give you a higher dividend just to stand still. If you want to grow, this must be higher still.

What if you have a large expense to fund? Again, the 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 £50k before tax.

To take £50k 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?

We love helping our clients with resource and cashflow planning. If you are planning for growth and would like us to assist you, please get in touch.

To talk to Michael Blaken at Optimum Professional Services about tax planning and accountancy email [email protected], call 01793 538 198 or visit https://www.optps.co.uk/.