Something for a rainy day

I had a Zoom meeting with a client last week to review and sign off some accounts. 

The accounts mainly covered ‘pre-Covid’ trading so it was a solid year. The current financial year will be a different story. They are a B2C or ‘Business to consumer’ service business. They were closed and had no sales during the period of lockdown and since then sales have been ‘fair but patchy’. Further restrictions on the horizon make the future uncertain.

But this business is better-placed than most. 

During the better trading years they chose to leave a reserve in the company in case tougher times arose in the future. Tougher times have now arrived, with knobs on and their prudence has been rewarded by having a reserve to fall back on to allow for the inevitable reduction in profits and cash flow this year.

How many of the rest of us showed enough foresight and self restraint to do a similar thing? 

Not many of us I suspect. 

Of course now is not the time for accumulating reserves. Some businesses are still fighting for survival and the majority are probably just ‘getting by’. 

The medium term priority for all businesses must be to return to profitability. Government financial support has helped but we know that this is unlikely to be sustained in the longer run.

Many businesses will have taken advantage of Bounce Back Loans or Coronavirus Business Interruption Loans so cash positions may be relatively favourable. Loan repayments will commence from next year however and it is profit rather than cash which will be the key measure of longer term sustainability.

In a post-Covid world, when it arrives and business fortunes begin to turn, the first priority for many of us will probably not be setting something aside for a rainy day.

One of the lessons of this crisis however is that we all need to become more resilient and prepare for the unexpected. 

Keeping a little bit in reserve, like my prudent and far-sighted client, is something we can all benefit from.

www.base52.co.uk