Simon Shaw of Duncan & Toplis urges businesses to plan ahead before the new financial year
January is the month of New Year resolutions, writes Simon Shaw of Duncan & Toplis.
As we look forward to 2025, it’s just as important that businesses plan ahead so they can grow during the coming year.
The national picture is still very mixed with uncertainty over growth, inflation, and interest rates. At a local level, there are signs of confidence with continued construction of both commercial and residential property bringing jobs and increased spending into the area.
One of the biggest challenges for businesses will be the impact of an increase in the National Living Wage at the same time as an increase in employers national insurance.
From April, the current rate for those 21 and over increases from £11.44 an hour to £12.21. This is equivalent of £1,600 per year, which although welcome for employees, will be a significant cost to businesses.
At the same time, the rate of employers national insurance increases from 13.8% to 15.8%, and will be applied to earnings over £5,000 per annum rather than the current £9,100.
For each employee on the National Living Wage this will cost the business an additional £780 per year. The combined cost of these two measures will be nearly £2,400, a cost which every business will need to carefully consider when planning for 2025.
In addition to the increase in labour costs, we are not yet out of the woods with inflation. December showed a rate of 2.5% which although this is less than the very high rates we saw during 2023 and into 2024 is still a significant cost to business and consumers.
Each business will have its own rate of inflation depending on its mix of materials, products, services and labour costs. Understanding what this looks like for the year ahead will be vital to setting prices.
In addition to understanding costs and prices, businesses will need to forecast demand for their products and services. Having accurate information from previous trading and understanding the needs of its customers will help a business forecast its purchasing requirements and expected cash flow.
For businesses that manufacture or supply goods now, is a good time to review stock levels to ensure the business is not overstocked which will tie up working capital.
Having honest and open conversations with suppliers will be a good start to 2025 to ensure the materials and goods needed are going to be available to meet demand. This is also an opportunity to review prices and trading terms to strengthen those relationships.
A sound accounting, stock and payroll system will not only allow a business to understand past trends and therefore forecast the year ahead, it will also provide real time information to track performance against forecasts and react to changes as the year progresses.
Although 2025 is likely to see increased trading costs for most businesses, the investment in capital can’t be ignored. Outdated equipment or technology can restrict any business as it looks to offset some of these increases and improve efficiencies.
Equally businesses looking to grow will need to carefully plan their needs at a time when uncertainty over the rate of growth remains.
As a reminder the important dates in the first quarter of 2025 include:
January 31: Self-assessment tax return filing and payment deadline.
February 7: VAT return and payment deadline for 31 December.
April 1: New rates of National Living and Minimum wage
April 5: End of the 2024/25 tax year
Whatever 2025 brings, taking time now to plan for the year ahead will ensure the business can meet the upcoming challenges.