Before COVID and Brexit disrupted the UK economy, we advised business clients to keep between three and six-months overhead costs in a cash reserve. This provided a buffer should firms experience a temporary dip in demand for their products or services.
Businesses that adopted this strategy prior to 2020 will have made good use of these reserves in the past eighteen months, and as we all know, the length and severity of economic disruption has been unprecedented.
Which is why, as the economy starts to open up again, we need to keep an eye on cashflow.
CASH IS KING
Profitable businesses can still fail if they run out of cash resources. Keeping an eye on bank balances should be top of your weekly to-do list. The best way to do this is to create a simple spreadsheet that displays your expected incoming and outgoing receipts and payments for at least the next quarter. In this way you can see where the peaks and troughs are going to occur and plan accordingly.
DON’T TAKE YOUR EYE OFF THE CASHFLOW BALL
For example, if you are registered for VAT and have agreed to pay by direct debit, payment for the June 2021 quarter will have been taken from your bank account in the second week of August. For traders who have no forward planning of cash flow events this sudden drop in cash reserves may have come as an unwelcome shock.
Which is why planning your cashflow is critical.
Now that we have experience of serious disruption to trading, we should all rebuild that three to six-months cover for overheads. Unexpected events could become unwelcome recurring events.
WE CAN HELP
Cashflow management should be a must-do item in the coming months as we gradually unravel from the effects of lockdowns. It should be possible to undertake the necessary planning and review without making a serious dent in your working week. And if business is buoyant, we could manage cashflow planning updates for you.
If you need help setting up and managing cashflow please call us on 020 7330 0000, we can help.