You cannot control interest rates, inflation, tax changes or consumer confidence. You can control how well you understand your own position and how quickly you respond when conditions change.
Businesses that come through uncertain periods in good shape usually have three things in place: good information, a cash buffer and a plan for different outcomes.
Know where you stand
Up-to-date figures are the starting point. Monthly management accounts and a current view of your bank balance, debtors and creditors show whether trading is improving or deteriorating before it becomes obvious. If your bookkeeping is months behind, catching up is the first priority.
Work out your break-even point: the level of sales at which your gross profit just covers your overheads. For example, if your overheads are £300,000 a year and your gross margin is 40 percent, you need sales of £750,000 to break even. Knowing that figure tells you how far sales could fall before the business makes a loss.
Protect your cash
- Keep a rolling cash flow forecast for at least the next 13 weeks.
- Chase overdue invoices promptly and consider deposits or stage payments on larger work.
- Put tax money aside in a separate account each month.
- Review borrowing facilities before you need them. Lenders are generally more willing to help a business that is not yet under pressure.
Plan for different scenarios
Rather than relying on a single forecast, prepare two or three versions: expected, worse and better. For the worse case, decide in advance what you would do, such as which costs you would cut, which spending you would delay and at what point you would act. Having the plan ready means decisions can be made calmly rather than in a crisis.
Keep the scenarios simple. A spreadsheet that flexes sales volume, prices and the main costs is usually enough.
Look after your customers
When times are uncertain, existing customers are your most valuable asset. Stay in regular contact, understand their own pressures and look for ways to help them, such as different payment options or a simpler version of your service. Watch for customers who start paying later than usual, as this can be an early sign of difficulty.
Avoid relying heavily on one or two large customers. If one accounts for a significant part of your sales, work out how you would cope if they reduced their orders.
Keep investing selectively
Cutting all spending can leave the business weaker when conditions improve. Continue to invest where there is a clear return, such as equipment that saves time, training, or marketing that brings in profitable work. The £1 million Annual Investment Allowance means most qualifying equipment can be deducted from profits in full in the year it is bought, which reduces the net cost.
Tax rules also change regularly. Reviewing the effect of each Budget on your costs and on how you take money out of the business lets you adjust your plans before changes take effect.
What to do
- Bring your bookkeeping up to date and review monthly figures.
- Calculate your break-even sales level.
- Prepare a 13-week cash flow forecast with a worse-case version.
- Decide in advance what actions you would take if sales fell.
- Talk to your bank about facilities before you need them.
If you would like help preparing forecasts or scenario plans, book a free call.
