Stuart Hulland and Kay Brookes, both partners at Bates Weston explain why regular check ups on the financial health of your business are so important.
With the end of furlough and Covid-19 support loan repayments starting to fall due for nearly 2.3 million businesses, businesses need their accountants support more than ever.
Getting a financial check-up from your accountant, especially if you have relied heavily on government help through the pandemic, is a great first step to putting your business on solid financial ground.
Information is key
Modern accounting software can generate a wealth of information on sales and cash management by linking your “books” to live feeds of current bank accounts. This is the digital record keeping we often talk about with our clients. Although it is increasingly mandated by HMRC, we recommend it because it lets us, as your accountants, help you to stay on top your figures and highlight problems before they have a chance to take hold. For example, how long it takes you to recover from a sudden bad debt, or comparing monthly variances in the accounts to assess the change in business income due to Covid-19 effects.
Both profitability and cash flow are important to a business, but when any business runs out of cash, it fails. If your business is essentially unable to pay its bills when they fall due, it is technically insolvent.
So, it is vital that you are aware of the flow of cash into and out of your business. We recommend monthly, three monthly and 6 monthly forecasts. Cashflow forecasts help you spot potential shortfalls in cash and let you take steps to plug the gaps – either by arranging short term finance, chasing prompt payment of debts or considering invoice financing.
Victim of your own success?
When a company grows faster than the cash resources needed to fund it, it often persistently uses its bank overdraft facilities, offers better credit terms than it receives and/or there is a large increase in stock and creditors.
Fixing this problem often requires negotiating better terms from suppliers, enforcing your own payment terms, reducing stock levels, considering leasing rather than buying assets, identifying cost savings or an injection of new capital.
In every case, knowing your numbers in real time and forecasting your cash position is key. Real time advice from accountants, like Bates Weston, based on this information, lets you spot potential issues ahead and take action before the problem develops.
If your business could do with regular financial check-ups, talk to us.