As 2024 draws to a close, now is the time for businesses in Ireland to budget for 2025 to meet the challenges and opportunities of the near future. But what does that involve?

This is about setting clear goals for how the business needs to behave and perform to meet the objectives you’ve set for it.

These objectives can vary greatly across business sizes and stages of business growth. A start-up, for example, might prioritise higher levels of growth, whereas a more mature business might aim for higher levels of profitability.

In any event, you need to budget to maximise the activities that are most profitable for you and scale back those that aren’t.

Your vision might require you to tap into or grow an export market, or recruit a bigger team, or even change your business model and ‘pivot’ the organisation to do something it didn’t before.

But how much will this cost, where’s the money coming from, and what uplift in business performance will it deliver?

One of the most critical elements in the budgeting process is understanding revenue drivers. These are the factors that have a direct impact on the revenues that enter your business.

They include levers you can pull yourself (sales, marketing, pricing, sources of external finance such as grants and investment) and those you can’t (market conditions, for example.)

Every Euro your business earns in revenue is eroded by costs, so it’s critical to budget for these expenses and understand how the coming year might look different from the year before it.

These are the expense drivers – the factors that influence how much it costs you to do business - and once again, they form a vital part of your procedure for modelling Finance.

The main expense driver for most businesses is labour costs, with supply chain and utilities also contributing heavily.

But to demonstrate how expense drivers can work very differently from one year to the next, take the example of office space. Many businesses reduced their office space in the wake of Covid and remote working, but the mood music in Ireland is that 2025 will see many businesses demanding the return of workers to the office.

Every business is, to some degree, at the mercy of economic factors that are outside its control.

Interest rates, inflation, and taxation policy can all impact your business’s ability to achieve its vision, so it’s vital to plan for best-case and worst-case scenarios to measure the potential impact.

An example from the recent national Budget, is the raising of the minimum wage, which will hit many smaller businesses hard in 2025, and the introduction of pension auto-enrolment, which will impose a technical and administrative burden on management processes that, equally, must be budgeted for.

At the same time, external economic factors can sometimes work to your advantage. The Budget also announced additional energy cost help for hospitality and retail businesses, a rise in the first-year payment threshold for R&D credits, and entrepreneur relief for angel investors.

The cost of technology platform subscriptions and software licences has long formed part of an effective budget, but in 2025, with the inexorable rise of AI and automation, championed by Irish business bodies, it will become an even more critical factor.

What processes will AI and automation enable you to make quicker, slicker, and cheaper, and what will the value of this be in productivity gain?

What are the cost implications for training staff in the use of AI tools? Will AI enable you to reduce headcount - and, if so, where, and by how much?

Increasingly, your sustainability and ESG (environmental social, and governance) stance come under scrutiny from investors, partners, customers, and job seekers alike, and that’s only going to get more common, and more extensive, in 2025.

Three elements are key here: changes to processes (sourcing, operations, materials, resource consumption, energy, and waste), measurement, and reporting.

Each of these is, inevitably, generative of costs. ESG-conscious suppliers and energy providers will tend to charge more for their products and services, training your people to do things differently adds a management overhead, and measurement and reporting often entails working with outside consultancies and/pr putting in place an Environmental Management System (EMS) or similar.

However, for smaller firms, the process could begin as simply as investing in an electric van, for example, or replacing the office lighting with LEDs.

Finally, what every Irish business’s budget should have going into 2025 is an effective risk management element. The bolder your vision for the business, the beefier the risk management needs to be.

Risk management is about budgeting for contingencies. If your growth doesn’t meet expectations, for example, what have you got to fall back on?

In the main, this is about having good cash reserves and a strong balance sheet. With cash in the bank, you can build a pretty solid buffer against most risk factors (the businesses that did best during Covid, for example, met this profile.)

But there are other methods, too. An appropriate overdraft facility is a useful risk management tool, and techniques like invoice factoring agreements can be an effective way to bring cash collection forward.

It’s also a good idea to try to get ahead of the risk curve by working out where you’re paying over the odds for in-house services that you could potentially outsource for much lower cost.

It can be hard to step outside the day-to-day buzz of your business and take the time to look carefully at budgeting for the coming year, but ultimately it will put you in a stronger position to respond to both issues and opportunities.