2016 CAN BE A GREAT YEAR FOR YOU AND FOR YOUR BUSINESS
As I write this post in the middle of December 2015, I know that I have a lot to do before the year comes to an end.
Mind you, we can think that December 31st is just another day in the middle of a week, falling as it will on a Thursday. However, not just for those of us whose accounting year ends on that day, it can also be viewed as a definite milestone in the life of your business.
It is generally agreed that 2015 has been a improved year for businesses in Ireland. The economy has continued to grow and consumer demand has increased. Interest rates are very low, oil prices have halved since mid-2014 and exporters are benefiting from a weak euro. These three factors have helped to stimulate the economy in Ireland and business confidence is growing.
Most commentators are saying that the three conditions are likely to continue well into the future. This is good to know as you face into 2016 and the new challenges that your business will face.
So, how well placed is your business to take advantage of an improved economy? That’s a tricky question, isn’t it? I think that you can answer that question only if you have the following information:
1. How does your business make a profit and will extra sales increase profitability;
2. What is the current financial position of the business and does it have adequate resources to facilitate growth;
3. What targets would be set for the year ahead.
The information to generate these details is obtained from working with your accountant to ensure a thorough examination of your profit & loss account, balance sheet and cash flow reports.
The most relevant year to examine is surely the most recent one i.e. 2015. Why wait until you are well into 2016 before you obtain this information? The 2015 performance and financial position become less relevant the further your business moves on from it. In a nutshell, the benefit of producing such very necessary information is lost.
I think that a good first new year’s resolution will be to have your 2015 Accounts prepared by, at the latest, the end of March 2016. Even a good first draft of the figures will throw a lot of light on how your business performed recently and how it was positioned at 31 December 2015.
In tandem with that exercise, I would recommend that you put an increased focus on the key areas of the business that drive profitability. Are you pricing your products or services to your best advantage? Have you negotiated the most favourable terms from your suppliers? Are your pay costs under control? What about the other costs of running the business?
Focussing on the profitability of the business is a crucial first step to understanding what can be possible in 2016. In that way, it will be possible to set realistic targets or key performance indicators (KPIs) for the coming year.
By then concentrating on the balance sheet, you will understand exactly where you are in terms of available resources to move confidently through 2016. After all, the position as at 31 December is the starting point to move from into the year ahead. You will understand what money is tied up in stock and customer credit; what suppliers are owed; your liabilities to the Revenue and other key parties.
Of course, getting a grasp of your activity’s cash flow is fundamental to establishing what’s possible for the business in the future. By knowing how your bank balance moves from month to month, you should be in a position to project forward into 2016 while incorporating the impact of achieving the targets you’ve set for the business.
To me, that’s very exciting! Imagine knowing exactly how your business makes money, where it’s at now and where you want it to be in twelve months time. It would make you all the more determined to succeed.
The sooner you work on this, the better it will be for your business. You should be able to make better decisions, negotiate better with your business partners, focussing on the key areas that need improvement or development.
Yes, 2016 can be a great year for you and your business. Ready when you are!