Look at the recent weather forecasts , they are never 100 % but we would rather have snow warnings than no snow warnings !
RLKAccountancy
Chartered Management Accountants , ACMA , CGMA
Get the WHOLE picture
Plan ahead with our guide to forecasting
Is your business accounting limited to day-to-day book-keeping and the obligatory year end accounts ? This is great for reflecting on past performance , but often too late after the event – and it doesn ’ t constitute ongoing forecast and review .
Remember , forecasting is not just about putting figures into a spreadsheet , it ’ s about getting a team together to build an aligned picture of the whole business .
This quarter , we focus on tips for the profit and loss forecast .
1 . Frequency of forecast . This could range from an annual budget , to quarterly or even monthly , depending on the business . A consultancy firm with fixed-fee clients might require less frequent forecasts than a chocolate manufacturer , who would have much more variability in their forecasts due to material prices , productivity of labour – and even the weather changing people ’ s buying habits .
2 . Decide how far out you need to go . A year is a great start , but to implement a robust strategy , a three- to five-year plan is ideal . The further out you go , the more estimated the numbers will be – for example annual instead of monthly numbers . Set a goal , such as doubling the size of your turnover in three years . Then plan for actions a few years in advance , rather than sitting around the table in three years ’ time realising that you didn ’ t quite make it .
3 . Profit and loss . Start with a simple profit and loss with the following categories :
i ) Sales . How much are you going to sell and for what price ? You are not expected to have a crystal ball , but a sensible estimate based on past performance and what you do know about the future can impact hugely on how you manage resources , materials and the infrastructure that supports them .
ii ) Cost of sales . What is the total cost of labour , materials and manufacturing overheads ? This will be driven by your sales number so the more accurate this becomes over time , the greater your production scheduling , purchasing plans and labour plans will be .
iii ) Overheads . This would include fixed wages and salaries for the resources you need in place , plus other elements including consulting , rent and rates , motor , travel , office , bank fees , professional fees , marketing , advertising and depreciation .
Please contact us if you would like bespoke models for your business .
Look at the recent weather forecasts , they are never 100 % but we would rather have snow warnings than no snow warnings !
Profit and Loss Y1 £ Y2 £ Y3 £ Sales Other Income Total Turnover Cost of Sales Gross Profit /( Loss ) List of Overheads Total Overheads Net Profit /( Loss )
Dividend allowance falls
It ’ s time to review how you ’ re paying yourself
From April 2018 tax-free dividend allowance will fall from £ 5,000 to £ 2,000 , effective 18 / 19 and in subsequent tax years . When Philip Hammond announced this change in the 2017 budget , he stated that 50 % of those affected are director shareholders of private companies , with the other 50 % being investors with shares .
This means that for 18 / 19 , your first £ 2,000 of dividends are tax free . Beyond £ 2,000 , if you haven ’ t used up your personal allowance of £ 11,850 by taking a salary for the tax year 18 / 19 , then that element is tax free . After that , it is 7.5 % in the basic rate band , 32.5 % in the higher rate band and 38.1 % in the higher rate band .
Up to £ 46,350 = basic rate band 7.5 % Over £ 46,350 = higher rate band 32.5 % Over £ 150,000 = upper tax band 38.1 %
Director shareholders should take this opportunity at the beginning of the new 18 / 19 tax year to discuss their salary versus dividend strategy with their accountant to ensure that it is still valid , remembering that dividends do not attract national insurance .