Why cash is still the king
MALCOLM McGREADY, a partner at Ensors Chartered Accountants, highlights the continuing importance of managing your business’s cash flow
The outlook seems a little brighter now, despite the shadows cast by spiralling public sector borrowing and electoral uncertainty.
However, while the classic recession threats that faced businesses in 2009 persist into 2010, a return to growth presents new threats which businesses must be vigilant of.
The depth and speed of the recession in 2009 claimed many victims. The ultimate cause of business failure is a lack of cash. Underlying this is at least one major factor that brings a business to its knees. Knowing where your business is exposed and mitigating those risks is critical. If your business model can’t withstand a sudden shock, you remain vulnerable.
As ever, cash remains a priority and HM Revenue & Custom’s Time To Pay scheme provided some relief last year. However, such funding is short term and it’s a salutary reminder that HRMC account for some 30% of winding up petitions. Businesses which continue to struggle with cash flow need to address the underlying causes.
Last year will have spurred some businesses to re-evaluate their business models. It can be a painful process, but can result in a leaner and fitter organisation. These businesses may now be better placed to service your markets and customers. Remaining competitive and not letting your competitors out manoeuvre you means getting out there to gather intelligence and talking to your customers.
Don’t forget your employees. Pay freezes have been common and can seem an appealing way to continue to control costs in 2010. It’s important to make this a reasoned and deliberate policy rather than to sleepwalk into it.
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The loss of key staff can be damaging to a business. It may be a time to think of more innovative arrangements to allow employees to share in any upside.
Finally, if your business is taking off again then managing your working capital to avoid overtrading is critical.
Managing cash flow is a core discipline that is ignored at your peril. Make sure that your accounting package is delivering the management information you need to run your business. Having visibility of your current and future cash position is vital.
There will inevitably be further casualties of the downturn in 2010. Businesses must remain focussed, ensuring that they have a sustainable business model whilst remaining alert to both the threats and opportunities that will arise. We’re not out of the woods yet…
This information is given by way of general guidance only, and no action should be taken solely on the basis of the information contained herein. No liability is accepted by the firm for any actions taken without seeking appropriate professional advice.