At the start of March, the Governor of the Bank of England, Andrew Bailey, said “there is light at the end of the tunnel” as he pointed to falling coronavirus infections and a successful vaccine rollout.
Shortly after, the Bank of England’s chief economist, Andy Haldane said the UK economy is like a “coiled spring” ready to release large amounts of “pent-up financial energy”.
This is all obviously good news for businesses all over the UK but a return to pre-Covid trading levels will take time and every business will have some sort of scarring. Similarly, collective business sentiment might take as long to recover as the trading levels themselves.
As a business owner, now is the time to take a deep breath, look out of the window and start planning for the longer term and hope that the fire-fighting for survival of the last 12 months or so is coming to an end.
These areas are where I would be focusing my efforts:
Pricing Strategy
This might not be the time to put prices up, but it is a good time to review your pricing strategy. Your strategy should take into account where you are now and where you want to be in a few years’ time. If you have established new products or markets, how much market share do you want to gain and will your current pricing approach achieve that? Are you positioning your product or service in the value or premium end compared to the competition? Make sure your marketing activity is clearly aligned with your chosen pricing strategy to achieve the best return for the spend. At the same time, ensure your product costing approach is up to date and accurate so you know your margins by product/sector/customer etc.
Payroll costs
Between 700,000 and 800,000 people have been made redundant over the last 12 months. It’s encouraging to see employment levels slowly pick up again but if your business has fewer staff now than at the start of the pandemic, make sure you get the timing right for bringing new people back in to the business. For some roles, e.g. sales and marketing, it can be a false economy to delay recruitment as good people can guarantee the growth pipeline, however in a manufacturing environment, review your 12-18 month productivity levels by key function/machine before you take action. The UK doesn’t have the best reputation for productivity so ensure you have the right people in the right roles to drive productivity upwards before bringing in new people. Productivity should be measured as regularly as the business intelligence (BI) allows, and if that BI doesn’t exist, think about creating a role to develop it before you put someone else on the shop floor.
Other Fixed Costs
It’s not as simple to say that costs are either variable or fixed. Most fixed costs are stepped in some way, as volume or activity reaches a certain threshold then this triggers the need to incur additional fixed costs, this might be warehouse rental, fork lift trucks, vans etc. If volume now is less than it was 12 months ago, review your fixed cost base to ensure it reflects current requirements. Develop a suite of KPI’s to measure fixed cost spend relative to output, the role proposed above to establish your BI suite should have the capacity to do both.
Business Planning
Make sure your budgeting, forecasting and strategic planning processes are fit for purpose. In these uncertain times, have a rolling forecast rather than an annual budget and keep that forecast up to date. My mantra for forecasting is “little and often”; if you get a new customer, update the forecast. If you take on a new employee, update the forecast. If you establish a new sales channel, update the forecast. As your business grows, make sure the right people have input into the forecast; sales, marketing, operations etc. Have a process that gives the right reward for the effort involved, don’t over-engineer it but don’t skimp either. You can put any numbers you want in a spreadsheet so make sure it is realistic, the best forecasts are those that act as good BI tools and highlight pinch points. Remember the BI/KPI role above, that spreadsheet junkie could quietly add huge value to your business for a modest cost.
In conclusion, as the business world prepares for a return to normality, there is much a business owner can do prepare for “the light at the end of the tunnel” and the much anticipated “coiled spring”. Every business is different and will have it’s local challenges but it’s never too late to plan for the future. If you need support with any aspect of your business financial planning, we are here to help.
Written by: David Appleton
