Getting prepared for the financial challenges after lockdown

It is vitally important as we come out of the year-long lockdown and hopefully into a brighter future, that businesses are fighting fit and ready to take on new challenges and opportunities ahead.

In simple terms, it’s a case of knowing your numbers and being on top of your business, so you can react quickly, as and when things change.

There are several factors to consider when monitoring your financial health that will help your business survive and thrive.

It is a good idea to set a budget for your business at least annually, although some businesses may benefit from reviewing their numbers quarterly to keep a closer eye on the figures to make sure the incoming funds outweigh their outgoings.

A good budget will factor in a degree of flexibility or continuity to allow your business to adapt to market conditions – especially given the current UK economic climate. Budgets that are too stringent can stunt business growth by not allowing the business to pursue opportunities that may arise.

Positive cash flow is also critical for the success of your business and businesses need to be aware that problems can arise over investment which can be in stock, employees, marketing and fixed assets etc.

Although bulk buying can save money from lower purchase prices thanks to economies of scale, holding too much stock ties up cash and can lead to losses if the stock is perishable or seasonal so the benefits need to be carefully weighed up.

Employment costs are often one of the highest costs incurred by a business. Again, there is a fine balance between having the right number of the right staff to service your clients and run your business, without over-investing or spending.

Recent research has revealed that late payment of invoices is the cause of one in five company insolvencies, with many larger companies being the major cause of cash flow problems among the small and medium-sized enterprise (SME) community. This is why SMEs need to also think efficiently about business decisions, such as who they do business with.

Other areas to be wary of are over-trading, which occurs when a business expands too quickly, putting pressure on short term cash flow and seasonal demand, where there are predictable changes in trade and cash flow.

Also, be prepared for any unexpected changes from internal changes, such as loss of key staff or machinery breakdown, to wider economic issues like the current global pandemic.

Any forecasting and financial modelling will need to be as accurate and comprehensive as possible to help you manage and maintain your cash flow.

Testing your plan ‘on paper’ before you make any costly changes or investments helps you establish the financial implications of the plan for your business.

Preparing a detailed forecast will help take your vision forward with clear-cut short and long-term action plans.

It can measure results, adjust tactics and activities to manage risks and keep the business on target, as well as improve co-ordination across different departments and motivate your team to work towards a common goal.

Build the business on paper and identify new opportunities to capitalise on, and evaluate their feasibility and impact.

This is where regular, accurate management accounts can help.

They allow you to keep your finger on the pulse of your business. Where forecasting and financial modelling looks into the future of your business, these work in harmony to monitor and assess the impact of any changes you put in place as they happen.

An effective bookkeeping system is essential for the management of your finances. This is where you can combine in house expertise and skills with the capabilities of various cloud accounting software programmes to tap into incredible business intelligence.

An effective strategic planning process should involve an independent adviser to facilitate your discussions and allow everyone to remain well-informed and participate in the process equally. An adviser, such as an accountant, will also explore the different views and opinions in the team, using them to enrich the strategy without derailing the discussion.

Strategy development involves collecting and analysing data on clients or customers, competitors, your marketplace, financial performance and the opportunities. Getting an impartial view on what this information means for your business brings new insights and ideas to the team.

In strategy, pace is a key consideration. Building your business too quickly or too slowly can reduce your team’s commitment to the plan and the enthusiasm to implement it.

A skilled adviser will manage the pace for the team and equip them with the information they need to get the fundamentals right, while accelerating the growth process when needed.

If you would like a hand delving deeper into the numbers behind your businesses, so that you can make effective strategic decisions, please contact us.