Managing your business' cashflow during COVID-19

Cashflow is the beating heart of any successful small business. It’s a concern for many even in normal times, but it has become even more challenging as a result of the coronavirus crisis.

The Government’s intervention and support packages have done what they were designed to achieve (in most cases) – they have stabilised small businesses and given them more time to react and plan. But what do small business owners do next? There is still a great deal of uncertainty around how financial support will transition, how the economy will recover, what consumer demand will look like and how lenders will support businesses in the longer term.

Most economists believe that there will be a bounceback, but all agree that we still have a long way to go before we get back to pre-COVID-19 levels of activity.

So in such uncertain times what should small businesses do to protect their futures and safeguard the millions of jobs the sector represents? Unfortunately these is no simple answer to this, but understanding and managing cashflow is the right start point for most.

To help business owners control their cashflow and protect their businesses in a post-COVID-19 climate we have developed the following 6 step plan:

Understand how your business is performing

Make sure you can track the performance of your business. We are in unprecedented times so it’s more important than ever to understand how your business is responding.

If you regularly monitor your finances you are far more likely to spot risks, problems, opportunities, etc which will help you act quickly. It will also help you understand trends and changes in your business, which in turn will support forecasting your future finances.

You should review your bookkeeping and reporting systems to make sure they can provide you with the information you need. This doesn’t mean you will need expensive software or reporting tools. Your accountant can help you find a cloud based bookkeeping package that works for you and can talk you through the different ways they can provide the financial information you need.

Review your costs

It sounds obvious, but consider reviewing all of your ongoing costs to see if they can be trimmed.

Some may be fixed/contractual or relate to key services or advice and therefore cannot be reduced, but others may be more discretionary and stopped without impacting on the business.

Look at ways to protect and predict future income

Many businesses have reported significant falls in income during the pandemic and are worried about uncertainty around future sales.

In most cases looking ahead and projecting figures based in previous income levels won’t provide you with a meaningful view, as buying patterns have changed quickly.

Look at ways you can protect your income, or at least understand how it may change. Talk to your key customers to see if that helps you understand their future plans. Consider payment plans for outstanding amounts and recurring payments for future work to give you some certainty over cashflow.

It’s also worth considering how you may be able to diversify to develop new sources of income. We have seen innovation in a number of sectors, with businesses finding ways to access new customers online.

If you can protect elements of your income you can start to track new trends, which in turn will help you to predict what may happen in the future more accurately.

Forecast your cashflow

If you have good reporting in place you can better understand where you are, and if you’ve reviewed income and costs this should help you start looking ahead.

Cashflow forecasts don’t have to be complicated – they should reflect the size and complexity of your business – but they are an invaluable tool for most business owners. They can help you track short term cash needs, monitoring against available working capital. They can also be used to support decision making and help you better understand how your business will change as we start to move away from lockdown.

It’s also worth mentioning that many businesses have taken on new debt as a result of COVID-19. Whether it’s deferral of VAT payments, bounce back loans, vendor loans or other funding, this will all need to be serviced and eventually repaid. Forecasting can help you understand how you can manage these commitments alongside your day to day business.  

Forecasting will never be perfect and there will always be assumptions involved, but it’s more important than ever that businesses owners look forwards.

Your accountant can help you set up a suitable cashflow model that works for you and your business.

Access support and funding available

The various Government support packages are all now up and running and funders continue to provide access to Coronavirus loan schemes. Full details of all of the support available can be found here.

Most small businesses have already accessed the funding they need, but it’s important to keep track of Government announcements and continue to review the need for additional loan funding. 

Keep reviewing the position

The final step is to keep reviewing the position. We have seen huge changes over the past two years and we still have some way to go before we get back to normal trading conditions.

Make sure that you review your financial position regularly, look at the reporting from your financial systems and keep close to your business.

As above, cashflow forecasts are hugely valuable in difficult times but they need to be as up to date as possible, so it’s worth updating them to reflect latest numbers and any key changes in your business.

How we can help

Don’t forget – if your small business requires any financial guidance through the coronavirus crisis, you can seek counsel from us. You can arrange a free initial consultation with a member of our team today by calling 01423 871 870 or completing our simple online enquiry form.

Date published 4 Jun 2020 | Last updated 9 Dec 2021

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.