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.