How to build industry analysis into your budgeting

Budgeting for 2021 is going to be a different experience for all business leaders as we continue to sail through these choppy waters. Whether it is the virus, Brexit or an internal malady, planning for the coming 12 months has so many caveats and subplots this year, budgeting is going to remain fluid throughout next year.

However, there are some things that you can do to mitigate the fog of uncertainty, plan for what might happen next and put your business in the best possible position to make a success of 2021. Key to getting your budgeting right is to have the best intelligence and insight possible. Nobody ever made a bad decision based on too much knowledge.

If you know how you compare to the rest, how your rivals are performing and the key market trends, you can see a clearer path to the likely future. Nobody has a crystal ball or a time machine to see what might happen in 2021 but understanding recent history and the current state of your market will put you one step ahead of your rivals.

So, how do you incorporate industry analysis into your forecasting sessions and what do you need to look for? There are key activities you can only do properly if you have reliable insight and analysis including:

Assess your dependencies and forecast vulnerabilities

Too many companies have shuttered their doors as their market dried up in 2020. If your business relies on one key customer or a specific, single market, you are no longer the master of your own destiny. You are at the mercy of that customer or market being there. As this year has shown, that can no longer be taken for granted.

Plimsoll has produced analyses for over 1600 individual UK markets, rating the financial outlook for every company within them. 26% of companies included in those studies have been rated as Danger.

That means if your business relies on one major customer, there is a 1 in 4 chance that company is in financial trouble – not a good position in the current climate

You should assess your dependencies and vulnerabilities on an ongoing basis by looking at:

• How reliant are you on one key client?
• How reliant are you on one key market?
• Are there similar companies out there like your “whale” client?
• Which other markets that you could diversify into offer enough reward?

Attempts to negate the effects of being too dependent on one market or client without solid industry analysis is akin to navigating without a map. You could fall into a series of lurches and guesses. At Plimsoll we provide our clients with a means of identifying and assessing all the options to reduce their vulnerability. If you are reliant on others, you are never truly secure.

Check your benchmarks and forecast performance

Understanding how your own business compares to rivals in your core markets is key to ensuring you position your business to survive and thrive. Being better prepared for the turbulence of 2021 could be the difference between success and failure. While others are flailing, periodically take a step back and assess:

• Are you getting the most from the assets employed?
• Are you productive enough?
• Are you as profitable as others in the market?
• Are you growing fast enough compared to key rivals?
• Who are you beating and who is beating you?
• What can you learn from the best?

The route to success in the current economic climate is going to be a mixture of maximising your strengths, minimising your weaknesses and being abreast of best practices. The ripples caused by the ongoing pandemic and Brexit could increase competition in every market – make sure you are beating yours on all the KPI’s.

Monitor your supply chain and forecast costs

Much like your customers, how stable are the key pieces of your supply chain? The danger of key suppliers failing is growing as disruption continues to hit the UK economy in 2021. Brexit and the virus will continue to put pressure on all companies’ financial stability in the coming trading period.

Companies also need to measure cost pressures as we journey through more austere times. Suppliers may look to steady their own finances by increasing prices. If you are unable to pass on those costs to your own customers that will exert downward pressure on your own profit margin. Increase your purchasing power with a list of potential alternatives suppliers so your P&L is not at the mercy of just one key trading partner.

Amid these difficult times, companies that constantly monitor their supply chain, its financial health and vulnerabilities will be less likely to be caught out. You can do this by:

• Monitoring the financial strength of all key trading partners
• Judging if price increases are justified
• Assessing the impact of price rises and being able to switch quickly
• Identifying alternates and assessing their strength
• Looking outside of domestic markets wherever possible

The failure of a trading partner should never catch you by surprise. 9 out of 10 companies currently in administration were rated as Danger by Plimsoll up to 2 years prior to their demise. Our analysis can give you multiple years of warning of growing weaknesses at your key suppliers and give you time to plan alternatives accordingly.

Pick out your next strategic move and forecast requirements

Once you are sure you have limited your exposure, measured your health against others and made sure your supply chain is secure, you should be free to start looking for your next move.

For some companies in certain industries, that move might include sitting on your hands for 12 months. For others, the crisis we are living through might allow you to make strategic changes that set your business on a growth path for the next 10 years or more. All those decisions must be based on sound financial analysis.

Every company has decisions to make in 2021 about how best to navigate their business through these troubled times to deliver the best return to its shareholders. Decisions that need to be made include:

• Are your current markets likely to provide growth in 2021?
• What people and assets will you need next year based on projected sales?
• How do you achieve organic growth in established markets?
• Could you make a strategic acquisition to buy in growth from current markets?
• Could we buy up or down the value chain?
• Should you diversify into new markets?
• If so, which markets offer the best returns?
• Do you set up new or buy a company in a new market?
• Do you just “sit tight” and wait for the storm to pass?

Each of those strategic questions needs an answer. Any answer without a strong analytical basis is merely a guess. No company should be reliant on guesswork amid this global pandemic and the other disruptions set to hit the economy in 2021.

Plimsoll has the analysis to help you formulate your own answers to these key questions. Whether you want to outlast your rivals, look at M&A opportunities in old or new markets, or decide whether to hunker down for 2021, Plimsoll has the analysis that will lay bare the options in an easy to digest and personalised format.

Go into 2021 with your eyes wide open to the risks and opportunities that are out there. Plimsoll can give you the intelligence you need. Visit www.plimsoll.co.uk to find out more.