Cashflow recovery tips: time to focus on success, not survival

After months of hibernation and lockdown survival techniques, it’s time for UK businesses to begin trading and open up the economy. 

Alan Healy shares his cashflow recovery tips and explains why your business needs to focus on success, not survival. With revenues still low and uncertainty in the air, owner-managed businesses will need to focus on getting in control of their numbers and creating the best possible conditions for their return to the market.  

Looking for success, not survival

We’re getting to a point where people are tired of hearing about COVID-19, loans, the furlough scheme and all the ‘How will you survive the pandemic?’ advice that’s out there.

The reality is that we WILL hit a point of recovery, eventually. So, we have to get to a point where we look beyond survival and do everything in our power to succeed in the future. It’s about your business being prepared, taking advantage of those competitors that aren’t quite so ready, and having a competitive edge that will increase your market share.  

The need for a razor-sharp focus on cashflow

If you look at basic cashflow management, you’d be surprised how few businesses do anything that proactive. Many owner managers will look at historical figures, but don’t forecast, run projections or get involved in any detailed decision-making based on these forecasts.

In the current climate, it’s important to know what you’re going to bring in financially, what you’ll spend and what’s left over. It’s also important to consider what’s left for you, as the owner, to take out of the business and live your life. You need to look at forecasting different scenarios, and then plan how you react as they play out.

Depending on your industry, you may be back in business or still experiencing uncertainty around when your business will be allowed to re-open. Whatever the situation, it’s crucial to think about what you can do not just to survive, but to take advantage of current market conditions.  

Giving yourself an advantage in the market

Once your industry is back at work, it won’t be a level playing field in most sectors. Other businesses may have poor cashflow, fewer staff or less access to quality supply chains in order to bring in new business and begin creating decent revenues.

To achieve an advantage, you need to plan ahead:

• Be ready – your owner-managed business has to be primed and ready to begin trading. What happens if things open up and you don’t have enough stock, resources or people available to react? It’s vital to be prepared, have a plan and come out fighting.

• Decide if you need extra investment – additional investment might be needed to get things moving – that could be in the form of loans or private investment. When approaching lenders or investors, you need a plan that shows you have considered multiple scenarios and that you’re robust enough to react to different situations.

• Make informed decisions – any big decisions need to be carefully thought through, so you have the best possible chance of succeeding. ‘Living with no regrets’ is the phrase I often come back to – if you’ve done the scenario-planning thoroughly, you’re well set to make the right decisions at the right time, with no regrets.

• Be aware of your debt – you may have deferred your VAT and tax payments, furloughed your staff or taken out a Bounce Back Loan etc. Remember that at some point, these loans and debts must be paid back, and staff will return on salaries. Ensure you work this all into your cashflow planning.

Putting the positivity back into your planning

When investment is required, you need to show you’re in a strong position and have planned out all the scenarios. Remember, you don’t just want to survive, you need to succeed!

It’s not just about going day-to-day with your usual business operations, it’s about asking the what-if questions and looking at multiple scenarios. You can plug forecasting apps into your online accounting software and look at those projections to see where it takes you. This is something we do at Haines Watts with the majority of our clients.

For months, we’ve had clients almost in survival mode – and the same has applied to some areas of the Haines Watts business. However, with lockdown restrictions easing and businesses beginning to trade again, now’s the time to look ahead and plan for the future.

As far as proactive action goes, looking at improving your working capital cycle will be important. There are three key elements to consider:

1. How quickly can you get customers to pay you, without ruining relationships?

2. How late can you pay your suppliers, without losing discounts or jeopardising relationships?

3. How quickly can you move products or services, whilst only carrying enough stock to react to the different scenarios?

It’s got to be a lean, proactive process, rather than things just ticking over.  

A new way of working

COVID-19 has created an unexpected revolution in how businesses will be run and managed, following the months of lockdown and industry shutdowns.

Many businesses are seriously considering if they need the space of a large, central London office anymore. That’s driven by the extremely positive ways that businesses reacted to the need for home-working, remote networks, video calls and the like.

We now know that people can be trusted to work when out of the office, and that remote working can be productive. It’s likely that we’ll all be spending less time in big corporate offices and more time with clients, at home, or working remotely from other locations.

To be prepared and ready for the ‘new normal’ of your industry, we have to get out of the pandemic mindset of ‘we must incubate’ and into a mindset of giving yourself the best possible chance of succeeding. You must be ready for it, and contingency planning, scenario-planning and new thinking will be incredibly important in this.  

Maintaining your positive cashflow practices

A lot of businesses will have looked at cashflow and will have brought on new practices to get through lockdown. It’s vital to carry on with these actions and to realise that they’re not just for the pandemic. If you’re looking at cashflow forecasts NOW, you need to carry on with this.

I like to have rolling forecasts, bringing in real-time information and influences - updating as outside factors change and affect the decision-making within a business.

You need to be constantly looking ahead and considering what may happen down the line. If you don’t know your numbers, then you’re stopping your business from having the best possible opportunities and success - whether this be to support your own lifestyle, gain investment, or approach a lender.

For many owner managers, one of the main goals of running your own business is to support a comfortable lifestyle. However, some owners will be wondering how best to do this, post-lockdown, when cash is tight.

• Improve your business cycle – your first port of call should always be to improve your business cycle, so customers pay quicker, debts get settled quicker, and goods/services get out quicker. As the owner, cutting your own income should be the last resort.

• Stick to your proactive lockdown practices – keeping your lockdown emergency practices and financial management going is critical. Keep looking at forecasting. Look at your credit control team and give them KPIs so you meet your targets. Don’t be reactive – it’s very important to stay proactive and to keep it up.

• Focus on working capital days – look at ‘lockup days’, or ‘working capital days’ to keep your cash on track. This involves looking at the cash impact of debtors, cash and operations and seeing what the impact is on the financial side of the business. Information is key – knowing your numbers and drilling down into them is vital.

Helping you to succeed, not just survive

It can be a lonely place as an owner manager, so having a supportive adviser is so important. We can provide a sounding board, give an objective viewpoint and tell you what we believe is the best way forward – challenging you at all points to do the best thing for the business.

A good accountant tells you what you CAN do and acts as conduit to that, whereas bad accountants just tell you what you CAN’T do. We’ll always aim to help you achieve your goals and attain the lifestyle you’ve aimed for.

If you’re ready to aim for greatness, please do come and talk to us. We’ll help you to plan, react and flex your strategy as the situation changes, getting you from survival to success.  

Talk to one of our Business Advisers about forecasting, scenario-planning and cashflow recovery tips.

Watch our recent webinar with Enterprise Nation on raising funds and managing your cashflow.