How to Manage Your Business and Cashflow During Challenging Times
Well it’s been quite a year and the one constant has been change and challenges, and this will continue to be so. All changes will have an impact on your business and bring with them challenges to manage and, most importantly, opportunities to look for. Thinking forward and trying to anticipate the effect on your business, and in particular on the flow of cash is key to being well placed to make the most of opportunities when they arise and deal with challenges. Cashflow is the lifeblood of business and you need to plan to make your businesses resilient and flexible. Dan is talking about the importance of planning forward for growth and succession and I am focusing on some tools to help you manage cash to keep your businesses strong. Here are some things to think about right now.
- Plan, plan, plan!– Think about the opportunities and challenges that may occur and plan how you will deal with them, and involve all the key team members in doing so, so they are all committed. If you have a flexible plan you will be better placed to face the challenges. No one really anticipated Covid-19 but the really strong businesses immediately assessed the likely affect and had a plan to deal with a number of eventualities and acted quickly. What other opportunities and challenges have you got in the immediate, medium and long-term? Family members wanting to join the business and those who do not, diversification projects, dry summer, labour, health status, to name but a few – think about how you will deal with them so you are ready to act at the right time.
- Develop a good relationship with your bank manager, so that they know you and your business well and has confidence in you and your track record. Do cashflows and updates so you know your business and share them with your manager – with up to date software and accurate recording this is simple and keeps them in the picture. If you don’t know how to do this on your software, then we can show you.
- In challenging times it is especially important that you keep your eyes on your long-term profitability and plans and focus your cashflow spending on the core business that generates your income, so that you are better placed when it eases. Capital expenditure can often wait but small compromises in management of livestock and the core business can have long-term effects on profitability, and ultimately cashflow.
- Look at the opportunities that are likely to arise and be ready – talk about it within the family and think about the longterm and be building towards it in an orderly way.Planning will enable you to have the right business structure, the right people in the right place, succession plans in place, property and business ownership properly structured so that you are ready to make the most of opportunities.Many of these things take years to plan and build and if you are ready you will be stronger and more resilient. They can also have major effects on cashflow.
- Plan for personal expenditure and ensure that you can match requirements with funding so that you do not put unexpected pressure on the business. Major items like housing, school fees, gifts, need to be planned for.
- Loan structures are important. Consider taking loans over a slightly longer period so that you do not put pressure on your overdraft when prices dip. Ensure you are able to deal with the repayments in a bad year.Look at loan terms so that you can repay some debt in a good year if you want to without penalty. Consider fixing some debt if you want certainty and are unlikely to be able to repay early.
- Review capital expenditure critically especially in challenging times. Businesses are likely to be more cyclical and capital expenditure is likely to be focused when you have made the profits to fund it. Again, plan capital expenditure on buildings with the long-term in mind and try not to block future opportunities – use grants where they are available to help you achieve your plans and to future proof your business.
- Look at other funding if you have short term pressure. You could currently think about:-
Delay your July tax payments until January – but don’t forget that they will still be due then.
Understand your business interruption insurance and ensure that you have claimed if you can.
Take loan and mortgage holidays for 3 months.
Talk to creditors about stretching terms slightly.
Finance any essential capital expenditure on HP to protect your overdraft facility.
If you would like help with any of the aspects I have mentioned then we are always happy to help.
Margaret Scarrott FCCA BIAC
Margaret has been in practice in the South West for over 20 years after qualifying as a Certified Chartered Accountant in London. Margaret is frequently called upon to help with partnership capital tax planning and family business reorganisations.
Margaret is a member of the British Institute of Agricultural Consultants and has been a member of the CLA National Taxation Committee, the Somerset CLA Committee, Cannington College Corporation and the Bath & West Conference Committee in the past. Margaret farms with her husband on the Somerset and Devon border. She is a keen supporter of Young Farmers and is a club leader and is on the advisory of Honiton YFC. Entertaining family and friends takes up much of Margaret’s spare time.