Following much needed Government financial support during the height of the pandemic, the time is now approaching for business owners to approach the road to recovery on their own.
The financial stimulus which has supported so many businesses over the past year has provided vital cash flow and allowed them to navigate challenging trading conditions. While the support was never going to continue forever, it is still a daunting prospect in a landscape of much uncertainty, to be sure that the right plans and decisions are being made. Inevitably this leads to some business owners avoiding the decisions they need to make for the next stage of recovery, which is likely to be more detrimental in the long run.
However, by acknowledging their anxiety regarding the future success or failure of their business, and by pragmatically assessing the situation and potential scenarios, they can begin to regain control of the situation and see the future path for success.
What does ‘restart anxiety’ look like?
Most businesses have faced substantial upheaval in the past 12 months so it may be difficult at this point to even recognise the signs of financial stress as we approach the return to business as usual, or at the very least increased demand. If a business has been supported by Government grants and loans, it could be harder to pinpoint those financial warning signs.
The following however, are all indicators that a more considered approach needs to be taken to ensure a successful restart:
- Revenues have fallen
- Payment of debts is falling overdue
- Government financial support has been relied upon to pay fixed costs
- More time is consumed worrying about the business than running it
- The business has been significantly damaged by the pandemic
- Dividends have been paid without reserves to cover them
- Communication with creditors has been avoided
Prepare for Success
We regularly recommend Cash Flow Forecasting to our clients. Even pre-pandemic, this was one of the simplest steps a business could take to put them in control of their own business outcomes.
Cash Flow Forecasting (or scenario planning) allows a business to assess a number of potential outcomes, and to put in place a considered recovery plan. The complexity of the forecast obviously depends on the complexity of the business and for many small businesses that are trading in a defined market and with a known supplier and customer base, the forecast is likely to be straightforward.
Three-way cashflow modelling combines profit and loss accounts, balance sheets and cashflow, and this can increase the visibility of costs across the business and feed into essential decision making. While the ongoing pandemic and overall economic outlook remains uncertain, the predictive nature of this type of modeling makes it particularly helpful. Another advantage to this approach is the space that it offers to owners in the process of negotiation with creditors, which provides increased confidence in the cash position of the business and its ability to deliver payments.
How sustainable is your business?
How do you know if your business is ready to meet the anticipated demand when the time comes, and once Government funding has ended? Will you be able to operate sustainably in a new landscape?
Consider the below aspects to determine your future business viability:
- Is there sufficient cash to pay your bills?
- Can creditor payments be adjusted?
- Are there any outstanding debts that could improve the situation?
- Do you have realistic revenue targets?
- Are you eligible for a restart grant?
- What adaptations could the business make to capitalise on new areas of demand, with particular consideration to online channels?
- Would relocation benefit the business?
- Are there any partnerships opportunities that could considered?
- Are you keeping your key customers and suppliers informed?
- Are you aware of any cashflow challenges that they are facing?
- If you are faced with cashflow challenges, have you discussed this with lenders?
- Could payment terms with creditors be renegotiated?
- Do you have a trusted adviser to support you with the situation?
- Do you have sufficient insurance cover, including unrestricted business interruption insurance?
- Could you effectively make the business dormant until restrictions allow you to trade as usual?
- Do you undertake full credit checks on new customers?
Led by the numbers
Cash Flow Forecasting is invaluable in times like these, as without access to accurate profit and loss balance sheets and key financial information, you cannot get a clear view of the opportunities and obstacles ahead. Being ahead of the competition in terms of data and information could be just as important as being cash ready. Time and again we recommend that our clients feed their business success and security with meaningful financial data which ensures they make informed decisions for the future of their business.
By carefully questioning their business viability and putting into place essential cash flow forecasting, business owners will feel more empowered to overcome their restart anxiety and reenter the post-pandemic world.
If you need support or advice on cash flow forecasting or other elements surrounding your business restart, please get in touch with the Kingston Burrowes team who will be happy to help.