The Road to Recovery

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Whilst the UK starts to reopen for business, a quick recovery seems unlikely, as social distancing measures look set to be implemented for a longer period. So how do businesses prepare for what the future holds whilst there is still so much uncertainty?

The “New Normal”

This is a popular phrase at the moment but the only problem is, nobody actually knows what it looks like, so trying to prepare for the unknown will be problematic for most businesses. Having said that, there is no reason why you shouldn’t take steps to prepare for the future, and looking at what those steps look like will set you in the right direction.

Start at zero

Most businesses will be effectively starting from scratch as they emerge from the lockdown, whether they have been trading for decades or just a couple of years. What was normal before won’t be normal going forward, so having an open mind about what you want your business to achieve and look like will give you some direction at the outset.

Keep a close eye on cash

If there is one thing we can take from the lockdown period, it is how important it is having access to cash. Utilising a cash flow forecast is a helpful tool to monitor your income and outgoings as you start trading again, as well as helping you to keep track of any payments that have been deferred due to the lockdown. Using a weekly cashflow forecast will help you spot any potential cash holes and updating it regularly will ensure that you know what your cash position is likely to be.

Overtrading will be a key issue

Businesses will be looking to make up for lost time as they re-open but if there’s one issue that will be prevalent, it will be the risk of overtrading. Overtrading occurs where you take too much work without the resources to fulfil the orders, resulting in a squeeze on cash as you wait for customers to pay. This is a common issue in start-up businesses and with most businesses having to operate as a start-up as they open their doors, keeping an eye on the level of orders will be vital, especially where cash is already at a low level due to lockdown.

Plan for different outcomes

If you have prepared a short term “emergence” cashflow, you can then start to look at more medium and longer-term projections, using different scenarios to ensure that your projections reflect different levels of turnover. Remember that if you are looking at staggered customer needs, this will likely impact on your anticipated turnover and having different scenarios planned out will help you to identify any additional finance requirements or what costs need to be reduced with each option. Using these projections can then help you with your decision-making.

Take the opportunity to review your business model

With cash so much in the spotlight, this will provide business owners with an opportunity to review operations to determine whether the business is operating at its most efficient. The lockdown may have also identified areas of weakness or strength, which may result in the strategic objectives being adjusted. Acquisitions and/or disposals can help build resilience if planned correctly.

Be prepared to make a loss

If your business has been profitable for a number of years, it can be hard to accept that your business may be loss-making for a period. But if you have seen reduced turnover from the lockdown whilst maintaining fixed costs (even if you have deferred some repayments), there will be an impact on your profit margins.

It is also important to remember that you can only draw dividends if you have sufficient equitable reserves.

In summary

Whilst the end of the lockdown will be welcome news, the emergence of the “new normal” will provide challenges for many businesses. But taking to time to reflect on how your business can survive, and thrive, as we start to learn what that means will prove beneficial. It can be often difficult to do these things alone – please get in touch if you would like to discuss how we can help you.