Cash and the recovery: Futureproof your business

Cash and the recovery: Futureproof your business

Lee Brook

Virtual CFO

Tuesday February 23, 2021
Insights

Lee Brook

Virtual CFO

Tuesday February 23, 2021
Insights

The beginning of the end, it seems, is in sight. In the months ahead – if all goes to plan – we will gradually emerge from lockdown. Businesses will reopen and customers and revenue will return.

There are still many unknowns ahead but one of the few certainties is that businesses will need cash in the coming months. We don’t yet know how quickly revenues will recover, or whether an unexpected setback will force more closures, but we do know for certain that costs for almost all businesses will increase, sometimes substantially. Government support measures like the Coronavirus Job Retention Scheme look likely to be extended again, but will eventually end; payments that have been suspended or delayed, such as VAT payments, business rates and rent, will return.

It is important to remember that there is a difference between revenue and cash. Businesses can’t rely on returning revenue to meet the shortfall, when many of them (particularly in the hospitality sector) will be starting from an income base of zero. Getting through the next few months will require a healthy cushion of readily available cash combined with continued government support.

But cash isn’t only a concern for businesses that have struggled during the pandemic; rapidly growing businesses can also run out of cash. We’ve often heard that cash is king, but it has never been more true.

So what can businesses do to prepare? Here are our five top tips.

  1. Budget, budget, budget. Make sure you know exactly how much cash you are likely to need, month by month. Which costs will increase? How much cash do you need to make up any shortfall?
  2. Control cash at the source. Think carefully about every item of expenditure. Do you need to spend this? Do you need to spend it now? Arrangements such as HMRC’s Time to Pay can help to spread the load.
  3. Get used to forecasting. A short and medium term cashflow forecast – of up to 24 months – is absolutely essential. Controlling costs and predicting revenue will mean nothing if cash runs dry.
  4. Make use of technology. Forecasting need not be difficult – there are many software tools and apps available to suit all types of businesses. Xero, our recommended provider for cloud accounting software, has a range of associated and easy-to-use cashflow forecasting tools that will help you visualise your cash situation and spot potential bumps in the road. As one of Xero’s Platinum Partner firms, we’re happy to recommend new and established apps for your business to explore, and to show your team how to get the most out of Xero.
  5. Strike the right balance. Hoarding cash unnecessarily can be damaging to the business when interest rates are so low. It may give you comfort to have a substantial cash cushion, but could the money be better used elsewhere?

Keeping a close and informed eye on cash will help to see businesses through the tricky weeks to come as we look towards the end of lockdown. For more information about how we can help you, including expert advice on budgeting and cashflow forecasting, please get in touch with your usual BKL Advance contact or use our enquiry form.

Lee Brook

Lee Brook

Virtual CFO

Advising large corporates, SMEs and regulated entities

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