Intro
As we step into the new year, it is vital for businesses to have a clear plan and set financial goals to navigate effectively through the next 12 months. It is often helpful to look back on the previous year to draw lessons from successful and unsuccessful periods of the year, this will allow you to plan around these periods and be better prepared for when they arrive. However, it must be considered that although some general trends will always be apparent, for example, the busy Christmas period for retail, hospitality, and other sectors, no two years are the same. Over the last few years, the economy has been rapidly changing, and this year may be more of the same. There is hope that with many new governments settling in and inflation back under control across much of the globe, stability will return to the global economy. However, there are still wars across the globe, and with Trump's entrance, who knows what will ensue?
Reflect and set new goals.
Before planning and setting goals, we must look back as if things remain the same, and there is no better indicator for performance than history. Cast an eye over the previous year and see where the business struggled and why; keep this in mind for the year ahead, flip the coin and look at strong periods for your business and why. Further to this, another thing to consider is to look at specific things from the year, such as inflation, interest rates, and changes in supply, and examine how these factors impacted your business. Without another economic shock (touch wood), inflation should now stay relatively low and bounce around the Bank of England's 2% target, which also means that interest rates should stay relatively constant with small reductions now and again triggered by the central bank. These and other economic factors must be thought about in your plans.
Create a budget amid uncertainty.
Understanding the economy in order to budget and plan accordingly is no easy feat, not even for economists and members of parliament. Because of this, the key piece of advice is to assume uncertainty and be ready for a shock. Hopefully, the new year will bring stability and growth back to the UK, but by building in the expectation of a shock, you will be prepared for all eventualities. The benefit of this is, firstly, the safety net for the business, meaning it will be able to power through adversity without too much struggle. Secondly, the safety net brings peace of mind as you will prepare the business for all situations and if, in the end, it turns out to be a smooth and successful year, then it will only be a bonus. Having a 'safety net' is easier said than done as money can be tight, but think of different options other than an emergency fund, for example, options for refinance, changing opening times, and cost reviews; there are many options to improve cash flow and help through a tough time.
Navigating the economy in 2025.
Looking ahead to what businesses may or may not need this safety net for, here are some of the key topics to keep an eye on: inflation, interest rates/investment, and trade.
As previously mentioned, without other shocks (touch wood again), inflation and interest rates should be relatively calm, promoting an economy ready for growth. The base rate from the Bank of England should fall somewhat as and when the bank thinks necessary; this should further promote growth as borrowing will become cheaper. The effect of cheaper borrowing is that growth and investment become more appealing to businesses, and there is often a knock-on or 'multiplier effect'; when one business invests, it funds other businesses, providing them with more confidence to invest themselves, and so on and so forth. So, hopefully, there will be stability, rate cuts and productive investment, although, as you probably guessed, this may not be the case. There could be many reasons for instability in the coming years, the ongoing wars in Ukraine and Palestine being key examples; however, one that jumps out is trends in trade. The aforementioned wars and the new arrival of President Trump have caused global tensions to run high, and the predictable outcome of this is protectionism. Trump is well known for his protectionist policies and has already spoken about his plans to sanction trade and promote nationalism. Protectionism is a two-way street, and typically, nations on the other end of the policies put up their own policies, quickly creating global trade wars. Now, this is not necessarily a bad thing as some sectors may be positively affected by this as it will boost UK demand for UK products; however, on the supply side, it is worth considering where your supplies are from and thinking about how global tension may affect their prices.
Navigating economic pressures
There are many different routes to go down in an attempt to gain financial security. Here are some options to consider: Firstly, cash is king, and if possible, keeping a strong and healthy cash flow is one of the most important factors for business survival; there are different ways to do this, such as predicting busy and slow periods and arranging costs accordingly. Another option is to avoid large lump sum payments, whether using asset finance to invest and grow but spreading the payments or funding supplier invoices, again splitting these payments over a longer period. On the business side, there are other operational options, such as diversification, which spreads your risk so a particular shock does not wipe you out; instead, you have fingers in multiple pies. Furthermore, cost optimisation is an option; you can reduce unnecessary spending by reviewing operational costs, renegotiate supplier contracts, and possibly invest in more efficient processes/equipment. Finally, and possibly most importantly, is scenario planning; if you prepare yourself for different economic circumstances, you will be much calmer and more organised if/when they arise.
Conclusion
To conclude, the year ahead will predictably come with some surprises, the key is to be prepared. This does not mean sticking your tinfoil hat on and sitting inside all year; rather, you should set yourself and your business in good stead to make the most out of it. By staying in touch with relevant news and being honest with yourself about your business's position, you can swiftly adapt and stay ahead of the curve. Preparation is the key, so take some time and budget/plan accordingly for the year ahead, and within this plan, consider different scenarios and remember, you can still be optimistic - 'Prepare for the worst, hope for the best.'
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