Whilst the UK economy continues to slow, but is not officially in a ‘
recession,’ business owners may be worrying about the impact that going into a recession could have on their business and with experts unable to predict the severity or the length of it, many business owners are fearing that the worst is yet to come.
When running a business,
cash flow management can be one of the biggest determinants as to whether a business will thrive or fail. Having inadequate cash reserves and no forecasting (or poor forecasting) are reasons why a significant number of
owner managed businesses (OMB)’s unfortunately fail within their first 2 years of trading and eventually have to shut down.
When faced with a recession, poor cash flow management becomes even more detrimental to the running of a business. As a business owner, if you can be prudent then it may help to save your business by protecting cash reserves during tough economic times.
MOORE’S TOP TIPS FOR MANAGING YOUR BUSINESS’ CASH FLOW IN A RECESSION
1)
Health Check Your Accounts
It is important to perform a financial health check on your accounts to understand how your cash is flowing. Take a look at your latest profit and loss statements, no matter how good your cash flow management is, if your business is not ever going to be profitable it will fail. However, while long-term profitability is necessary, in the short-term consideration of cash flow is at least as important. Many profitable businesses fail through poor cash management meaning that they are unable to pay their liabilities as amounts fall due. Identifying how much cash is likely to be needed and when plus how you are going to achieve this is the key information required from this consideration.
2)
Collect Your Debts As Soon as Possible
If the UK does enter a recession, you may begin to notice that some customers that previously paid on time may start to fall behind with their payments, this in turn can then begin to impact your cash flow and the running of your business. We would recommend putting a plan in place to ensure that you receive your payments in time. Some examples could be:
• Reward customer loyalty by offering discounts for early payment
• Set credit limits and payment terms
• When taking on new customers, carry out credit checks
• Penalise late payers
• Request upfront deposits
3)
Plan a Yearly Budget
Cash is king and cash flow management is a vital task to ensure that your business thrives. If you are able to accurately project your cash flow, you will be able to steer your business in the right direction. Creating a yearly budget will help you to plan financially for the coming year, helping you to understand what months may be quieter than others, and helping you to plan ahead for these months where you may not be as busy and potentially cash requirements could be under pressure. Quieter months are great for planning of new products or services, or taking up other business activities to tide you over.
4)
Have an Emergency Back Up Plan
In a worst case scenario you could be faced with a cash flow crisis. It is important to have a clear, well thought out back up plan that can provide you with peace of mind and the security needed in an emergency. If you notice that your cash flow is becoming severely squeezed, then this could simply be the result of bad financial planning. Speaking to and working with an accountant to hone your financial forecasts should give you an easier understanding of the data within your business’ financials to be able to make informed business decisions. This could include some thought into where additional sources of finance could be obtained and how to arrange them.
5)
Ensure That You Are Optimising Tax Relief
There are a number of tax reliefs that are available to encourage business growth. It is worth speaking with your accountant to understand what reliefs you may be eligible for.
Research and Development (R&D)
The UK Government allows your business to claim tax credits for
R&D work. The scheme is designed to reward innovation within small businesses. It is estimated that there is potentially
£84 billion in unclaimed tax relief owed to OMB’s across the UK.
Employment Allowance
The
employment allowance means eligible employers are able to reduce their National Insurance liability by up to £5,000 for the 2022/23 tax year. The allowance is designed to support smaller employers with their employment costs.
Business Rates Relief
If you do not run your business from home and are using a commercial space to be able to trade, then it is likely that you will already be aware of business rates. Business rates are a tax that you need to pay when you own or rent any domestic property. If you run a business which only occupies one property and that property has a rateable value between £12,001 and £14,999 then you will be eligible for business rates relief.
6)
Modernise Your Cash Flow Forecasting Systems and Tools
To get a full understanding of your business’ cash flow, you will need to ensure that you have the most up to date financial information about your business. Cloud accounting software can help you to achieve this by giving you access to your entire financial picture, all in one place and at any time.
How Moore UK Can Help You with Your Cash Flow
At Moore UK, we have a dedicated business outsourcing team who are able to assist you with the expertise and tools that you need access to, allowing you to successfully manage your cash flow. Our team are also on hand to provide you with advice on software packages to make the process of modernising your finance system and tools as seamless as possible. We offer a
free initial consultation.