Does your business have savings that would cover at least three months’ overheads for your business?
This is a prudent, but thanks to COVID, completely unrealistic goal for many businesses who exhausted any such cash reserves months ago as COVID lock-downs and other measures drained cash flow.
Government support in the form of loans – so-called Bounce Back loans – has provided liquidity but has also increased liabilities.
However, businesses that have survived thus far would be wise to factor in the gradual accumulation of a rainy-day fund into their financial planning in the coming months.
In this way, their ability to survive future downturns in trade will be greatly enhanced.
Having the ability to meet overhead costs if turnover drops away for a period means that you will not be forced into making cut-backs that will damage your potential to re-establish your normal pattern and volume of sales when the economic cycle swings back into positive growth.
Accumulating cash reserves can only be achieved if new capital is introduced and retained as cash in your business or if you retain profits – after tax – rather than distributing these profits or by inappropriate investment in resources that are unlikely to be productive in the short term.
Managing our businesses based on the “let the good times roll” mantra may no longer be a sensible option. If we have learned anything in the past eighteen months it’s that adverse and unexpected events are lurking just around the corner.
MJB Avanti help business owners to maintain an up-to-date overview of their finances, helping them to pivot effectively, call MJB Avanti to see how we can help you (08000) 388 799
Source: Informanagement