High inflation, the weak pound and a hung parliament have unnerved directors. Take back control of your cash flow and drive business success with these tips from Tony Smith.
Recent findings show that uncertainty is considered a major challenge by 36 per cent of UK businesses, and it’s not hard to see why. Inflation is up to 2.9 per cent, its highest rate for four years, and is expected to rise further by the end of the year. Adding to business woes, a fall in the value of the pound since Brexit has pushed up the price of imported goods as well as commodities like oil and fuels.
Faced with an economic slump and political upheaval caused by the result of the general election, businesses need to look at how to drive success in an increasingly uncertain business environment. Here, we outline some ways of avoiding a crash on the bumpy road ahead.
It’s a given that businesses should know where their market stands and where it’s heading in the future to react effectively to change. A crucial tool for this is PESTLE analysis. PESTLE analysis, which incorporates political, economic, social, technological, legal and environmental factors, monitors and assesses change within the environment in which the business operates. It’s extremely useful as it provides directors with a broader understanding of their market and the information gathered can be used to guide the company in the present time as well as for longer-term goals and strategies.
Cash is king
In uncertain times, directors need to build up strong cash reserves to assure the financial security of the business. This can be done in a number of ways, including managing debt more efficiently by negotiating extended payment terms with creditors. Directors can also renegotiate loans with funders for longer repayment terms, which should provide a lower monthly payment, enabling the business to set cash aside each month.
Directors need to create a cash flow projection and update it regularly if they are want to improve cash flow. This involves using financial information to create a picture of how the business will operate in the upcoming 12 months. The forecast must show revenue sources and expected expenses, which shines a light on the ups and downs of business income and can be used by directors to ensure that adequate finance is always in place.
Avoiding wrongful trading
Directors must be aware of the company’s financial position at all times. Once a company is unable to pay its debts as and when they fall due and/or its liabilities outweigh the total value of its assets, it is insolvent. At this point, directors must cease trading to avoid allegations of wrongful trading, which is when directors have deliberately avoided paying creditors. Directors claiming they were unaware may be regarded as proof of unfit conduct.
Tony Smith is a director at Business Expert.
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