A new year is upon us. The trials and tribulations of 2005
are behind us and the New Year partying is over. So do we
now just continue as before, groping our way through another
year taking things as they come, or should we not sit back
for an hour or so and look at the big picture in the light
of experience? Not a bad idea? So where do we start?
First step – review the year gone by
If you are in business how much profit did you make last year?
How much did you reinvest in the business? Has the capital
value of the business changed? Profits are not everything;
you may have pumped a good proportion back into the business.
But at the end of the year it should be possible to compare
the value with a year previously and so determine if and to
what degree the year was profitable. If you are in employment
as opposed to being in business then you can still work out
whether the year was profitable or not. This can be done by
first looking at the value of your fixed assets. Has your
property gone up or down in value for example? Then look at
your cash assets. Did you have more in the bank at the end
of the year than you did at the beginning? Then look at your
medium to long term assets such as savings andretirement plans.
Global markets were generally positive last year so they should
have risen in value and by an even greater degree if you were
adding to them. Don’t forget in all cases to deduct
liabilities such as mortgages, credit card debts etc.
So how did you fare?
Hopefully you can establish that you ended the year richer
and wiser. But we all know that if you are in business the
road is not always a smooth one. If you were in a tourism-related
business or job last year what promised to be a good year
suddenly turned sour. Whatever the outcome, it is worth analysing
how that outcome was achieved. Easy enough if business was
hit by the bombing. But what if you had a boom year in exporting?
Can you rest on your laurels and assume the same results this
coming year? Or was success due to a particularly strong global
demand for your product, a demand which could easily shift?
Apply the lessons learnt to the next business plan
We cannot change last year’s results but we can apply
what we learned from them to our future plans. I know a case
for example where a client’s exports to the UK were
hit (in a previous year) by the foot and mouth epidemic. His
solution the following year was to diversify his markets so
that business did not depend so heavily on a single market.
In another situation you may have a lot of business with one
big customer. Great, until you lose that customer. If you
are one of the many restaurant owners hit by the multiple
blows affecting Bali to what extent could you adjust your
target market so that you can attract local expat custom as
well as tourists? Many have succeeded in so doing and thus
ensured a steady clientele irrespective of the flow of tourists.
Not so easy perhaps if you are selling products only tourists
will buy, but I do know of people who can still make a good
living from exporting their wares even when no-one is coming
into their shops.
Prepare a detailed budget
The beginning of the year is a good time to calculate all
the expenditures you are likely to make in the year. Make
ample provision for contingencies and when estimating earnings
allow again for unexpected setbacks. This means maintaining
a safe level of reserves. I recall a well-known specialist
car manufacturer in the UK in the 70’s going into liquidation
despite having full order books. The reason? Cash flow –
or the lack of it! And include insurance in your budget. It
may be a further drain on resources but nothing like the calamity
that can result from a death or serious illness, or where
the business is concerned, a fire or accident. The budget
should be reviewed every month and adjusted as and when necessary.
Is your personal wealth growing?
Many expats work long and hard hours year in year out, yet
their personal wealth does not grow. With the onset of old
age the danger is that savings will dwindle and serious hardship
could follow. Hence the importance of measuring progress and
taking appropriate action if you are not moving forward and
building up your assets every year. If you are on a fixed
salary the only way to increase savings may be to reduce expenditures.
Not easy if you are accustomed to a given lifestyle. I once
met a couple who said they could not afford to save even a
small amount monthly for retirement but I know that they also
liked to wine and dine at upmarket restaurants. Of course
it is important to enjoy life, but at the same time we must
spare a thought for the future. When preparing a budget, there
has to be some allocation for long term needs. This would
be taken care of automatically in our home countries but people
often drift away from reality under the palm trees!
So out with the pen, paper and calculator! Put down your plans
for the year and keep monitoring them. If your plan can stay
on track you can then look back with satisfaction when this
time comes around again.
Colin Bloodworth is a senior adviser with Financial Partners
International. The opinions expressed are his own. If you
have any questions regarding personal finance you may contact
him at 021 520 8099 or colin.bloodworth@financial-partners.biz
