Business Finance: Mark Upton on why having a business plan really matters

Mark Upton on Ensors Chartered Accountants

Mark Upton on Ensors Chartered Accountants - Credit: Contributed

THE New Year commenced with some major retail insolvencies, including Jessops, HMV and Blockbuster, which followed on from the Comet administration just before Christmas.

One could argue that these failures had been well sign-posted, with competition from internet retailers cited as the main reason for their collapse, but does it also signify further erosion of consumer confidence, and do these insolvencies indicate that we can expect more business failures to follow?

My view is that we may see further national retailers fail as the shape of the modern high street continues to evolve but for corporate East Anglia there are significant other challenges that need to be faced.

Although the number of formal company insolvencies continues to fall, with no real indication that the number of failures is suddenly going to start increasing dramatically, this is not to say that businesses are not facing real problems and are genuinely struggling to survive.

These include so-called “zombie businesses” which able to survive due to low interest rates plus the assistance and goodwill from creditors (including lenders and HMRC) but which are barely generating sufficient income to continue.

There is little scope for investment and growth in these businesses and they are likely to become more and more inefficient as the time comes to replace old and tired equipment and they are unable to raise the required finance to do so.

The Government Funding for Lending Scheme has been taken up by the high street banks and other lenders and there are a significant number of asset-based lenders seeking to increase market share but businesses will still need to demonstrate viability to attract this lending.

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An essential ingredient to help business owners demonstrate to funders that they are on top of their financial performance is to have a working and evolving business plan and cash flow forecast.

If business owners themselves don’t have the ability to produce such forecasts then it is essential that their professional advisers are in a position to assist in such an exercise.

A working forecast will enable a business to highlight where the financial pinch points are (such as payments to HMRC, loan repayments and requirement for capital investment) that may threaten the survival of the business.

It also demonstrates a professional approach to lenders and other stakeholders and will be an essential element if the business needs to negotiate payment plans and turn itself from a zombie business into one that is able to survive and thrive.

: : Mark Upton is business recovery partner at Ensors Chartered Accountants.