Back to the fray

For many businesses, after the initial panic and scramble to ensure survival, lockdown has been a time of treading water.

Employees on furlough, rent holidays negotiated with landlords, non essential spending halted, loans secured. Then its been a matter of waiting for things to change.

There is still a long way to go as the Government advisors keep reminding us but lockdown is starting to ease with the re-opening of non essential retail imminent. The hospitality sector is expected to follow soon.

The ‘new normal’ means social distancing and strict hygiene measures will remain in place. Business owners and their teams have been planning how they will re-open in these circumstances.

Much of the planning will be operational - one way systems to limit contact, hand sanitiser stations, screens for employees, restricted customer flows and so on.

There are other factors to consider which may get less attention in the rush to re-open. 

The biggest of these is answering the question, ‘Is your new business model viable?’ 

In other words, after estimating your sales and allowing for costs of your new way of working, are you making a profit? 

If not, what is your ‘break-even’ level of sales?

Knowing the answer to both of these questions is critical in my opinion. 

The first because it is the acid test for your recovery plan. If you are losing money to start with you need to know this and have a projection of how long losses can be sustained for. 

The second is the initial target you are aiming for. Reaching break-even as soon as possible is imperative if the business is to maintain financial viability in the longer run.

I would argue that the most important aspects of financial management at this time are forecasting (of projected profits and cash flows) and regular monitoring and review.

The easing of lockdown is a time for optimism and hope.

Combining this with good financial management will increase your chances of weathering the storm until we reach calmer waters.

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5 tips for small businesses to survive and thrive in tough economic times

The UK has just announced that growth in the first quarter fell to only 0.1%. Construction and retail sectors were hit particularly hard with the bad weather having a significant impact. 

Consumer confidence remains low with high inflation and slow wage growth being contributing factors

So how do small businesses cope in these challenging times? How can they keep stable and even grow when the overall economy is underperforming?

Here are 5 tips for staying on course:

1. Pay attention to the financials

This is a time to put additional care into financial management. Ensure that you have a regular routine for record keeping and reviewing business profits. Use forecasting to look ahead and ensure that your finances are stable for three, six and twelve months into the future.

2. Stick to the knitting

This is not the time for being distracted by exciting and speculative new ventures unless you have significant reserves or adequate financing in place. Focussing on the fundamentals of your core business - looking after customers, ensuring operations are efficient and effective and that current trading is profitable will pay off in the long run

3. Keep creditors informed

If cashflow is tight it is important to keep creditors informed and work with them rather than lying low and hoping things improve. If your suppliers know that you have a plan and are intending to settle with them when you can, they are more likely to stay supportive than if you keep them in the dark or break promises

4. Talk to your bank

If your business is going through a difficult period, talking to your bank at an early stage is a good idea. It is possible that a refinancing package or extended overdraft taken at the right time could make the difference between fire fighting and a more managed recovery

5. Don't stop marketing

When finances are tight the temptation is to cut back on all discretionary spending, including marketing. That could be a mistake because when the upturn happens you will not be in the best place to take advantage. It is a good idea to review your marketing however and concentrate on the activities which are delivering tangible results.

There are no guarantees for survival and growth for any business. In tough times, doing the basics well and following these tips should help.

If we can help at Base52, please get in touch

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The power of forecasting

One of my annual rituals at this time of year is to prepare a detailed financial forecast for the next financial year.

It's part of my training as a management accountant and I spent many years as a retail accountant compiling company budgets and forecasts so I guess it is in my DNA now.

I've developed a simple but accurate template for this and with a day or so's effort my first draft emerges from the magic of Excel and I can reflect on how it looks. Inevitably it's below my expectations. After allowing for clients who have stopped trading or their circumstances have changed and factoring in cost increases and new costs, I'm usually left with something of a gap between where I want to be and where my forecast is pointing. So although a bit disappointing, that's not necessarily such a bad thing. At least now I know there is a gap and I can think about what to do about it.

The two ways to close the gap are more sales and reduced costs. I will always give a lot of thought to how we can increase sales - attract more customers, look at the services and value we offer to our existing customers and what new services can we offer. As far as cost reduction goes, a proportion of our costs are fixed but some are discretionary. I will look at these and ensure they provide good value for money and are affordable. So with some tweaking and decision-making I will start the financial year with a forecast that shows a good improvement on the previous year and a plan to make it happen.

In some ways this is the easy bit. It's the month in, month out effort to deliver the plan  which is the bigger challenge. I find this annual forecasting process really valuable and an essential part of my business routine. It gives me comfort that we have a plan to move forward and something to measure against during the year.

So here is to another good year with more sales, satisfied customers, more customers and more profit. That's what the plan says so we now need to roll up our sleeves and do it.

www.base52.co.uk