This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice please consult us here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
A financial plan is not just useful to households, but also for businesses (of all sizes). 2023 may be a challenging year for some business owners, especially with inflation now running at 11.1% and with warnings of a recession. Below, our Burnley financial planners offer five ideas to help business owners craft an appropriate financial plan for 2023 with a professional. We hope this content is useful to you and please get in touch if you’d like to discuss your own financial plan with us over a free, no-commitment consultation.
#1 Review your pricing power
Half of businesses have reported facing higher input costs (e.g. raw materials from suppliers) as inflation rises. These costs typically must be absorbed by the company – eating into margins – or passed down to customers via raised prices. Taking time to build up your pricing power can help you mitigate the former. This will be easier to achieve if your products or services are deemed to be “essential”, are low in cost and difficult to find elsewhere on the market.
If you have low room to maneuvre on these fronts, then you could focus on building up a brand strong enough to make these three variables less important (even irrelevant). This takes time and investment to achieve, however. Disney, for instance, has raised its theme park ticket prices by 7.9% compound per annum since 1971, beating inflation at 4% compound per annum. Whilst your business will likely not have Disney’s branding power, it could still build a loyal customer base within its niche market with the right strategy and investment.
#2 Improve your margins
Perhaps higher costs are already undermining your margins. Keeping the former under control is especially important in a high-inflation environment. One idea is to reduce operating costs by making strategic cuts and using automation. A thorough audit of your processes could help eliminate inefficiencies and improve margins. It might be that you need to cut low-margin clients out of your business.
For many businesses, the cost of energy will be a concern in 2023 as the government moves to provide “transitional” help for 12 months from 1 April. Small businesses may be negatively affected since businesses with energy costs below £107 a MWh for gas and £302 a MWh for electricity will not receive support from this date. Here, the key steps will be to claim any support your business is entitled to or consider less expensive premises. If you are confident that you will remain in your chosen location for a while, then a longer contract can help you negotiate a lower price with the property owner.
#3 Be careful with borrowing
Interest rates have been rising since late 2021 as the Bank of England strives to fight inflation. Lenders, in turn, have also pushed their own rates up – potentially making business loans (and your mortgage) more expensive. Small businesses, in particular, need to be careful. Many will need external finance to thrive, but taking on too much debt will threaten your financial stability. Be strategic with managing your cash flow and consider consolidating your business debts if your financial adviser thinks this could reduce your monthly instalments.
#4 Invest in business protection
The last thing you need during a cost of living crisis is an unexpected disaster throwing your business plans off-course, such as the death of a key person (e.g. a senior salesperson, director or key shareholder). Ensuring a robust financial protection plan can help to shield your business during such scenarios. Key person protection, for example, provides a payout to an employer if a key man/woman in your business dies or is diagnosed as terminally ill. This can help with loss of profits, recruitment costs for a replacement and settling outstanding loans.
#5 Review your business plan
It is always worth taking time to check that your business is heading in the right overall direction with its strategy. What does your market look like right now? Is it a “red ocean” (i.e. lots of other companies fighting over limited customers) or a “blue” ocean (i.e. minimal competition and lots of potential customers)? Can you realistically hope to keep growing the business by increasing your penetration into the existing market with your current products or services? Or, could it be time to start pivoting into a new market – or, introducing some new products? Do you still retain a sustainable competitive advantage over your rivals, and if not, how could you forge one? How difficult is it for new entrants to start competing with you?
Here, a simple SWOT analysis (strengths, weaknesses, opportunities and threats) can help to organise your thinking and establish a set of tasks, ordered by priority. A financial planner can assist with planning for cash flow, tax mitigation, protection and more during this process.
Invitation
If you are interested in starting a conversation about your own financial plan or investments, then we’d love to hear from you. Please contact us to arrange a free, no-commitment consultation with a member of our team here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
Reach us via:
T: 01282 772938
E: info@elmfieldfp.co.uk
