Government support scheme paybacks: Is your business ready?

It is likely that you will need to upgrade your systems, digitise the business, and ensure you are fully COVID-19 compliant. These may be one off costs, but they will still need to be considered. If you were fortunate enough to continue trading throughout the past year, you may be thinking about investing in capital to expand your business. Have you considered how this will be funded?

Start with your business plan

A business plan including a projection of your profit and loss account, balance sheet and cashflow can help you to be prepared and ensure your business is still viable. Business viability is the ability of a business to generate profit or net income on an ongoing basis, year after year. Whilst we are still in uncertain times, plan for at least six months in detail and include estimates for several years. It is a good idea to produce more than one version so that you can compare different outcomes, whilst remembering to be realistic – sales and income should be achievable, not a pipe dream.

Get your expenses in order

Evaluate what your breakeven sales need to be for the business to be profitable. Break down sales into each element and do the same for expenditure – this will help to identify which costs are recurring and which are ad hoc. Ensure to include all of your operating expenses, (these are the essential expenses you need to incur to keep the business running) and factor in your own drawings.

Understand your cashflow

It is important to understand your working capital requirements going forward, as they might not be the same as a year ago. You must be able to pay your bills while you wait to be paid. Is there a time lag between your provision of goods or services and getting paid? A cashflow provides details of actual cash required by your business on a day to day, month to month and year to year basis. Good cashflow management is critical to running a successful business, now more than ever.

You may need to make some changes to maximise your cash position. It is better to hope for the best while being prepared for anything less. Plan for quiet or busy periods and review costs, cutting back on unnecessary expenditure. Look for ways to improve productivity and make efficiencies, whilst thinking about promotional activities.

Highlight shortfalls that need to be bridged. If your plans do show a negative cashflow, ask yourself if this is temporary or long term? No matter what your turnover is, if your cashflow is always negative, then your business will not survive. A temporary negative cashflow can be managed using a bank overdraft, but overdrafts are expensive, so if the business needs funding for a longer period, other options will need to be considered. Remember to build in loan repayments if it looks like finance will be required.

Look for ways to speed up inflows and slow down outflows within reason. Bill regularly, chase debt and send out statements. Your customer may be trying to do the same, so get to know early warning signs and manage customer debt proactively to limit your bad debt exposure and safeguard cashflow.

Be timely with your spending

If you do get a surge of income over the next few weeks, be careful not to overspend or take too much money out – it is important to put money away during the peaks to cover the troughs. If easier, set up different bank accounts to move money into, so that it is not in the normal current account.

Remember, actual performance is likely to deviate from your projection, so update and flex your business plan as you get more certainty.

Hazlewoods Accounting Solutions team can help you to prepare your business plan and manage your accounting data using cloud accounting software to give you the financial information you need to plan effectively. To find out more, take a look at our webinar series, where we discuss effective cash management, as well as decision making with data: https://bit.ly/2RBJ4oz. Or contact Senior Manager, Jennifer Harrison, or a member of the team on 01242 680000.