It’s that time in the annual financial cycle when many are looking to the year ahead, and for numerous businesses the process can start with the Finance Director/Controller preparing this year’s budgets and projections.

However, before delving straight into spread sheets, it’s well worth taking the opportunity to stand back and look at the existing business, consider the changing marketplace and how this may impact on trade and provide different opportunities in the future.

Half a day is all it will take to spend some quality time considering these issues – and in view of the current economic climate, this could be the best half day of time spent for many months! If an external Advisor is used at the meeting they can provide impartial input, bring observations from their exposure to other businesses and be used as a sounding board as well as an independent facilitator if the management group would benefit from this support.

Whichever approach is adopted, first of all take a look back at last year to fully understand how the financial result arose – remind yourself what were the conditions throughout the year, rather than just at the year-end/now. Were there one-off events (positive or negative) that really influenced trade? Was there a large order that was delayed from one year into the next or any other factors that distorted the result?  In today’s world there are few businesses that can appropriately ‘take last year and add 5%’ or assume that they will achieve the same outcome – the world has changed and your challenges and opportunities are likely to have done so as well.

Despite all the doom and gloom, many businesses are trading extremely well.  A number of them have developed particular niches for ‘in-demand’ products or services and their challenge is how to service their ever-increasing number of customers. Others have become successful by being flexible and adaptable. Many look at the skillsets and expertise within their business and see what new opportunities have arisen or are likely to be created that they can exploit in the year(s) ahead.

It takes a degree of self-control to carry out such a review – on a day-to-day basis customers will be demanding quality service and delivery of product – but in the medium to long term, they are likely to benefit from the process as well.

The other significant benefit of considering the business objectives and strategy before preparing the budgets and projections is that the business story should be fully developed and thought through – the projections should therefore be merely a translation of the words into numbers.  This is critical for any business where there will be external review and challenge – be it from the holding company if you are a subsidiary, a Bank or Equity provider if you are seeking finance, or a potential purchaser of the business if they make an approach to buy the business.

Any external party will review the numbers and ask questions about them.  In the majority of cases where we carry out Due Diligence for Funders or Trade Purchasers, we discover problems with the projections. If the explanations have not been fully developed and the projections are ‘number driven’, it is likely that the credibility of the numbers (and management that prepared them) will be brought into question thereby reducing the chance of gaining acceptance, funding or a successful sale.