With 2020 finally dragging to a close, and with it the Brexit transition period, now is an ideal time to conduct a thorough company healthcheck. As the UK business landscape continues in the “new normal”, it’s important to rethink strategies. This ensures that companies are equipped to face any further challenges that lie ahead.
The ability to recognise when a business is firing on all cylinders, or any red flags that might indicate the need for action to be taken, is key. A strong business should not only be making a profit but should also have sight of its future cash position.
Cash forecasting
2021 brings the phasing out of the Government’s Coronavirus Job Retention Scheme (CJRS). Payments to HMRC will fall due. Repayment of Coronavirus Business Interruption Loans (CBILs) and the credit facilities are also on the horizon. Now, more than ever, owner-managers should ensure they have modelled their cash for the next 12-24 months.
More advice for businesses relating to Coronavirus is located here.
A forecast should have several ‘best estimates’ of future revenues and costs built within it and is subject to constant review and change. That said, it is the best insight to the upcoming cashflow of the company and the need for action. As ever, cash is king, not only for survival, but also to enable agile change as we move forward.
Taking action to protect your business
Taking action to mitigate cash flow is key. Action can be taken with a wide array of solutions, some of which are identified below. These should be bespoke to your business using the industry knowledge and sector expertise. You need to not only look at your offering but how this is located in the wider economy, and what impacts will likely filter down to your business. An easy example of this would be a logistics business, which could be seen as quite stable in the pandemic, but with a customer base in hospitality/leisure or trade exhibitions. Whilst the core offering could be seen as strong, without action, the knock-on impact from both customers and the supply chain will have had a significant flow through consequence.
Diversification
As the board of the business, you must consider the wider context of the internal and external changes. Look to continue to pivot where and when required. It is essential to continually communicate with your staff, key suppliers and customers updating them about any changes and how it impacts them. Confidence in you and your offering creates efficiency and support from those around you.
The bigger any change within a business, the more time is needed to implement. Effective forecasting will enable businesses to spot any cash flow gaps early and keep their options open. Seeking specialist advice from experts can also help owner-managers to strengthen their business plans. They can provide an objective view of strengths and identifying any areas for improvement.
For more information, go here.
Efficient debt management
If owner-managers spot warning signs that the business is heading for financial difficulty, focusing closely on debtor management can be a good place to start. In the current climate, it’s likely that customers will take longer than normal to make payments. As such, businesses should consider ways to regain control over their debt collection processes. This might involve dedicating time to:
- improving lines of communication with customers
- taking advantage of accounting software to automate the issuing of statements
- undertaking a legal process to recover funds.
For further information see this blog on business recovery.
Improve Liquidity
Another effective way to boost a business’ liquidity is to strike a better balance between product sales and supply. For example, are you holding onto stock for too long? Can you take advantage of any useful patterns in buying behaviour?
People
The quality and loyalty of your people directly impacts the success of your business. A short-term view may suggest that staff will remain with the company due to the competitive jobs market. The communication, actions and handling of staff in this period of uncertainty will have far greater effects on the longer term. Not all incentives are monetary, so even if finances are tight, you can look to make some changes, for example:
- improve flexibility on working hours
- share options
- training/communication around career promotions and timescales
Be customer centric
Businesses should understand who its ideal customers are for each of its different product and service lines. This allows it to establish what the best channels to market are. It should also understand the perceived value of the offering. We often discover the best-selling line of business does not always lead to the most return on the bottom line.
The cost to businesses of not engaging with existing customers is huge, with potentially lost sales, lost profit and the risk of losing disengaged customers altogether.
Business outlook
While many businesses have been in survival mode during the pandemic, the time has come to look to the future and plan ahead. Businesses must adapt plans to meet post-pandemic market demands. With robust plans and a close analysis of cash flow, businesses can set themselves up for healthier financial performance.
Remember, we are only weeks away from leaving the EU, and plans should already be in place. In business, the only certainty is change! At Menzies LLP, we can support businesses with all the areas mentioned here, to ensure your business plan is robust as we move into 2021.
Menzies is a top 20 leading firm of accountants, finance and business advisors that operate out of a network of offices across Surrey, Hampshire and London, providing our clients with easy access and local knowledge. Described as the ‘best performing firm outside of the top 10’ by Accountancy Magazine, Menzies has over 400 employees and an annual turnover of more than £40m.
