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The COVID-19 pandemic has had a damaging effect on the UK’s private business sector, with businesses of all sizes facing significant challenges. And cashflow issues have been chief among these. The result of the pandemic on sales and cashflow is a prime barrier to business growth for 2021/2022.
Life can change rapidly. For businesses to stay afloat, the ability to respond and adapt to the unexpected is essential.
The economic impact of the last 18 months is yet to be known. There are steps you can take to help minimise the damage to your business.
Have regular management accounts produced
> What are management accounts?
Management accounts are a financial report used by business owners and management for day-to-day decision making. They are usually produced monthly or quarterly and provide insight into the current financial health of a business.
There will be some businesses that are too small to need detailed management accounts. However, a basic, quarterly summary of some sort and comparison with previous periods would be beneficial.
Management accounts bring to your attention cash-flow problems before they happen and help you analyse the money going out of your business. Total business costs are not enough. You need to know where the business is spending money.
> What should management accounts look like?
Management accounts for small businesses would usually include a profit and loss account, balance sheet, cash flow statement and a simple report. You can put the accounts together yourself, or an accountant can do it for you.
Aim to invoice clients as soon as any work is complete and orders despatched. Any delay makes a big difference to cash flow.
Ensure the due date for payment is highlighted on the invoice so that the customer is aware of the deadline. At the same time, make sure that the invoice is sent to the correct person otherwise this could cause a delay.
Make payment as simple as possible by enabling card payments and online transfers.
Electronic invoicing is the easiest and quickest method to receive payment. Using an automated invoicing system can save time and money and helps avoid mistakes.
Wherever possible, negotiate payment plans with creditors to spread repayments over time. Doing this will preserve capital and should protect your business for its future survival.
It’s worth checking out any recurring expenses. Check on how much your present utility suppliers are charging and see if there are cheaper offers. Money could be going on subscriptions or services no longer required. If this is the case, stop them. If the business has any outstanding loans, are these renegotiable?
Lease instead of purchase
The high costs involved in owning and operating equipment prove it may be more cost- effective to lease rather than own. Leasing makes it easy to spread the cost of equipment and assets over their useful life in predictable monthly instalments. This protects your cash flow. Many commercial equipment leases also include service agreements negating the need for in-house technicians.
A vast array of equipment is available for lease; vehicles and machinery to software, computers and communication systems. It doesn’t matter what sector your business is.
Look to the future
While declining sales is a frightening phenomenon, careful management can help its effects on cash flow. Simplify your business where it is possible. By concentrating on your main profitable outputs, you may end up with a slightly different but healthier business. If you can ride out this economically trying time, your company will be even stronger when the economy improves.
If you would like help or advice regarding the cash flow in your business, please get in touch for a chat.
Disclaimer: Information provided by Kidwells Accountancy on our website is for informational purposes only. It is provided in good faith but we make no guarantee of any kind regarding the accuracy, reliability, or completeness of any information on our site. We always recommend businesses seek independent legal and financial advice before working with us or acting on any information on our website.