boost you business by managing cash flow

Boosting your business by managing cash flow

Jul 27th, 2021

Richard Tomlinson, Partner

Recent Covid-19 measures have had a major impact on businesses. The global economy has taken an unexpected turn and business leaders now face immediate challenges, including managing their cash flow.

According to recent research shared in Langleys Solicitors Back to Business report, over a quarter all businesses have just three months or less of cash reserves. The pandemic has taken a toll on all of us in business and keeping track of cash flow will aid in regaining and retaining financial control.

Why is cash flow important to a business?

Having a good idea of what is going in and what is going out means that it is easier for businesses to plan and make decisions. Being aware of current funds prevents the risk of making decisions that may jeopardize a business and its future, for example, choosing to make a purchase or investment that isn’t affordable based on the current cash flow. This also applies when considering growth and expansion plans; growth ambitions need to match the funds available and consider the costs involves.

It is a crucial part of business to maintain good relationships with suppliers. If cash flow is an issue, it might mean that a business is unable to pay supplier costs which could in turn harm both partnerships and reputation. Managing cash flow means funds will always be set aside to pay the bills.

Having clarity about where the money is currently being spent enables businesses to evaluate where they might be able to cut costs or where it is necessary to increase expenditure. This clarity can be achieved by regularly checking and updating a cashflow statement to keep track of changes from month to month.

The impact of the pandemic on businesses

Covid-19 has impacted all businesses, regardless of size and very few have escaped the pandemic without harm. In a year defined by uncertainty and loss, staying afloat has been a challenge for many businesses. It is estimated that Covid-19 will cost SME’s £126.6 billion and around one in ten expect it to cost them more than £50,000 individually.

Finances have been a source of concern for small business owners, with 61% having had serious financial concerns at some point throughout the pandemic. However, there is hope on the horizon, with the end of restrictions looming, 25% estimate that they will be able to return to pre-pandemic levels of trading by summer next year.

How will the end of the furlough scheme affect businesses?

Many businesses have relied heavily on the government’s furlough scheme, however, this is due to end on the 30th September 2021 as by that date restrictions on permitting businesses to open, and work to resume, will be removed, and a further extension will not be necessary. Despite this, the effects of ending furlough will be felt by many. Latest figures show that at the end of May, 30% of employers still had staff on furlough and throughout the pandemic 11.6 million jobs have been supported by the scheme.

When September arrives, businesses will need to take staff back or make redundancies, which could generate a spike in unemployment. In addition, employers may need to hire additional or new staff members, replenish stock and factor in other costs involved in rebooting business. 

The increasing need for cash flow during the pandemic

The outlook for many businesses post-lockdown is defined by credit lines close to zero, government grants that have been drained and decimated bank savings. Research from the Bank of England estimates that companies could face a total cashflow deficit of £140 billion after maintaining employment, facilities and equipment throughout the pandemic.

As businesses emerge from the depths of the pandemic, they must learn to walk again without the financial crutch of the government propping them up. Findings from Langleys Back to Business report found that the cost of doing business is the joint top challenge that businesses face over the next five years, so gaining control of cash flow is crucial.

Business owners could not foresee the devastation that Covid-19 would cause, but it has highlighted the importance of having contingency plans and ensuring financial resilience.

The benefits of good cashflow management

The most obvious benefit of managing cash flow is that a business will never run out of cash. It is fundamental that there is enough coming in to be able to pay staff wages and purchase the supplies needed to satisfy demand. Being unable to fulfil these necessities is likely to make for unhappy staff and customers.

If a business owner is unaware of how much is flowing in and out, it is easy to overspend and land in a difficult situation where bills and invoices cannot be paid back. Cash reserves meant for emergencies may end up being used to pay for routine bills, which could be prevented by effective planning and management.

Controlled cash flow puts a business in a position to embrace growth opportunities and not be held back from expanding and rivalling competitors. It is always in a business owner’s interests to improve efficiency and quality, but the funds have to be available to do so.

Finally, it is easier to sleep at night without cash flow worries. With research showing that 3.7 million small business owners experienced stress over lockdown, getting finances in order can reduce this burden. Having peace of mind that bills can be paid on time means that focus can be put on looking for opportunities to grow and progress, rather than time being spent on counting the pennies.

This article was published July 2021 in The Yorkshire Times

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