Focus on your finances

Surviving the economic downturn

The current credit crisis and economic downturn have forced businesses of all sizes to be even more focused on their financial positions. The survival of many businesses will be dependant on their ability to address some key fundamental issues during these challenging times.

Firstly, financial reports are essential to ascertain the state of the financial health of a business. These reports should include a, profit and loss account, sales forecast and cashflow analysis. They will enable you to remain in control of your finances, and importantly will tell you where you are in relation to the level of sales you require verse’s your costs.

Never underestimate how much cash you need. Many businesses fail because they don’t have enough cash, not because they are unprofitable. Review cashflow regularly, and carefully balance any credit given to customers with the terms of your suppliers. Don’t be afraid to negotiate with suppliers.

The most effective way to manage your business cashflow is by budgeting, which will enable you to take advantage of any new business opportunities. It is prudent to have a contingency fund and, most importantly, be realistic.

Unless you review your financial reports regularly they are useless. So it is important to set time aside to assess your finances, at least monthly. This will allow you to identify any potential problems in advance and take the necessary steps to avoid bigger problems later.

Make sufficient provision to avoid unnecessary risks, for example, by using insurance wisely to avoid unexpected costs. Many businesses fail to think about what they would do if a key member of staff was suddenly unable to work. Think about using insurance where possible to mitigate these risks.

If you are a partner or a company director protect your business in the event of a partner or a co-director becoming ill or dying. Life assurance, for instance, is historically cheap. On the death of a partner or co-director it can be set up to provide funds to purchase shares or repay capital accounts and give bereaved families a fair share of the business.

Many businesses need a reasonable amount of cash in the bank, not least for their tax liabilities. Make your money work for you by always getting a competitive rate of interest. But don’t leave too much money in your current account, as most banks allow you to transfer funds quickly between current and deposit accounts allowing you to earn as much interest as possible.

If you need to borrow money to get the business started always consider all your options and check whether there is any financial assistance available, such as grants. It’s important not to just accept the first offer you receive, and taking professional advice is essential if you need guidance. Don’t avoid professional advice because you think its going to be expensive. Good advice often more than not pays for itself.