They say every business hits a crisis sooner or later. Add together a combination of inflation, the pandemic, tax rises, post-Brexit changes and supply chain issues, and the waters look very choppy indeed. One recent survey, for example, showed that a cash flow shortfall has become the new normal for many small businesses for four months out of 12.
It should be noted generally that a forecast will be needed in any application for funding. Tip three: use it, review it, refresh it Business performance should be reviewed against the figures in the forecast. What are the differences between expectations in the forecast and what actually happened? Interpreting the figures should highlight pressure points and facilitate remedial actions before issues become acute. The next step is to revise the forecast with real-time figures and then repeat. The ongoing cycle of forecast, review and refresh will show how far things can stay the same, and how far they need to change. It provides an early warning system, highlighting where more radical action may be needed. Ultimately, it will tell you if the business is viable. Tip four: act and adapt Taking this management information on board, key areas to keep under review include the following - though there are many others: Property costs Many businesses are using this time to reconsider their property footprint. A combination of homeworking, hot desking or use of flexible office space may have advantages for some sectors and some businesses. Where businesses currently operate from rented premises, another area to consider is whether purchase could make for greater cost efficiency in the longer term. Capital expenditure and asset replacement cycle Traction from the tax rules The Annual Investment Allowance (AIA), available both to companies and unincorporated businesses, is now to stay permanently at £1 million. It no longer falls back to £200,000 from 1 April 2023, and an adverse impact from transitional rules need no longer be taken into account. This means that if businesses were accelerating expenditure
This Briefing offers practical help to weather the storm. It looks at ways that adapting now could build resilience for the longer term, and highlights areas where the tax system offers potential leverage – from timely use of tax reliefs for the purchase of capital equipment, to cash-efficient employee remuneration and schemes to attract investment. Tip one: understand your business inside out In times of stress, the starting point recommended by business recovery experts is: acknowledge that this isn’t business as usual. And then act. While planning is more difficult in the current climate, it becomes even more important. Drawing up budgets is more difficult – but more essential. Pricing a product or service is more market-sensitive – but more critical. Successful adaptation will require better insight into what makes your business work than ever before. Tip two: forecast cash flow Whether it’s for wages, rent, suppliers – every business needs cash: and knowing that it can cover costs for a certain basic minimum period is imperative. What that period is, will vary, depending on the nature of the business, but in times of change or crisis, a rolling budget over a shorter period is likely to be most helpful. The tool for this is a cash flow forecast, pinning down the timing and amounts of cash going out and coming in for a set period. We are happy to work with you here, either to maximise the potential of your accounting software in this area, or to prepare a cash flow forecast on your behalf.
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