Blogs/Vlogs

Opening up shop with uncertainty

02 July 2020

The UK is starting to open up again and there are now guidelines in place to restart the economy, but will it be plain sailing?

The Government has provided a lot of support to SME businesses over the past few months. Although this support has been very much welcomed and has enabled businesses to survive whilst the UK economy has fallen into a recession, in reality, debt is building up and at some point it will need to be paid.

The question is, when will it need to be paid and will you have the cash to do it?

It’s important to be proactive when it comes to managing your cashflow. The old adage ‘Cash is King’ has never been more relevant during these times. I recommend forecasting your cashflow over the next 12 months and I have put together some innovative tips for maintaining cashflow when there is a sudden interruption to normal business, like the COVID-19 crisis;

  1. Consider your whole supply chain and work with your suppliers and customers. It can be easy to forget the culture, values and brand of your business when the stress of managing cashflow takes over and survival mode kicks in. Hounding your customers for payment and delaying supplier payments without any communication may have a detrimental effect on the long term survival of your business.

Communication is imperative to continue to build relationships and trust. Discuss payment terms with your suppliers, there may be an opportunity to delay payment or put a payment plan in place.  Also, it works the other way, do you know when your customers are likely to pay you?

Keep in mind people will remember how you behaved in uncertain times and it could completely destroy a relationship. Building strong relationships and collaborating with all parties in the supply chain will work in your favour to ultimately achieve a win-win-win situation.

  1. Preparing a cashflow forecast – most businesses will plan their upcoming cashflow especially when there is a sudden change in events. However, there are some tips on preparing a cashflow forecast that will make this exercise worthwhile:
  • Firstly, real time information (RTI) is key to having fast and accessible knowledge to make vital business decisions. RTI isn’t powerful unless the accounting software is reconciled and up-to-date before you start making assumptions and preparing a cashflow forecast. There are many cloud based options available for accounting software that integrate with cashflow forecasting apps (such as Xero and Futrli), making the whole process automated.
  • Frustration comes from the unknown and uncertainty. When preparing a cashflow forecast under the current circumstances, an SME may feel stressed or under pressure to make accurate assumptions. No one knows when everything will go back to ‘normal’. Some say it never will and we have to adapt to a ‘new normal’. There is also a risk of a second wave and further lockdown restrictions. Building flexibility into your cash flow model will enable you to tweak certain elements such as another lockdown period or redundancies. This will provide a more realistic outcome and when more things become known, the cashflow forecast can be updated.
  • As we go on this journey, we will pass through various different stages, starting with the initial shock of ‘how am I going to survive’ and ‘will we get through this’. Eventually, once you’ve come to terms with the initial impact such events may have on your business, you may start to consider pivoting your business or exploring alternative revenue streams as consumer demands change.
  • It is easier to make these decisions once you have established your current cash position and the market demand. Scenario planning is the next level of cashflow forecasting and can provide further clarity on the future direction of your business.
  1. Think outside the box. You may have already applied for government support available to your business but I recommend reaching out to your network and professional advisers to ensure you understand whether there are any other options. You’re not alone and dealing with this on your own may not provide you with the best outcome and opportunities could be missed.
  1. Take the time to review your outgoings. How many businesses stick with the same supplier or service provider without reviewing the value for money? The answer is a lot! With the best intentions in the world, most small business owners do not have the time to review all of their costs. However, now is the time to do this and review alternative options, for example is it cheaper to outsource HR, finance or marketing than employ? Are you getting the best deal for your utilities and software support?

There are many considerations to take into account when preparing a cashflow forecast and we are more than happy to support you. We can help put together an initial 12 month forecast and provide advice on cashflow management.

Feel free to contact me on e.deakin@uhy-uk.com, or call 01462 687333 to discuss your business and find out more on our cashflow forecasting service.

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