Riding the roller coaster - why cashflow should now be at the top of your priority listPosted: Mar 7, 2022

If you run a business and don’t currently have cashflow planning at the top of your agenda, you probably should. I realise that with everything that has happened in the last couple of years it feels a little bit like you may as well consult a seafront fortune teller about the future, but some potential problems are very clear. Your cashflow is currently at risk from a lot of different areas that we can confidently point to and, hopefully, be ready for. Planning realistically for the impact of these potential issues is vital. Cash is King as we always say, but in times of economic uncertainty, planning and realism are the power behind the throne. To ride out what could be a roller coaster of ups and downs in the economy for 2022 you need to know where you stand.

I heard a wonderful phrase to describe the current situation the other day. Someone said they felt like they were running a business in times that their grandkids will one day interview them about for a GCSE history project. It’s a valid point but at least we seem to have made progress. As the main initial impact of Covid fades though we need to be aware that the shockwaves it created are part of a plethora of changes that are going to impact almost every business. The coming months may be more stable, but they require careful handling when it comes to your cashflow. These are just a few of the things to think about.

Are you accounting for the effects of inflation?

Inflation was running at almost an all-time low at the start of the first lockdown. At the time of writing, it is heading for the highest rate in years and, at 5.4% in Jan 2022, it was higher than the Euro area average. That means price rises across the board. If you haven’t accounted for these rises your cash forecast could be significantly underestimating your costs. This is particularly true in some very specific business-related areas (see the next point) both right now and probably for some time to come.

Have you accounted for specific price rises?

Spot increases in manufacturing or general day to day costs can be catastrophic when it comes to cashflow. Two areas that immediately come to mind are utilities and transport. Both have increased in price dramatically in recent months. Stories of businesses seeing price increases on electricity that will lead to major financial problems are everywhere. The financial gap between paying the cost of manufacture and running a business, and the income they generate, can be a hard time for your cashflow if your utility bills suddenly rise. Transport cost is already on the up and with fuel prices soaring it’s a safe bet it will continue to do so. You must be able to compensate for specific rises or you could see your margin eroded in very big way.

Tax is going up

At least we all know that this one is going to happen and what the cost will be, but in April there will be a big round of tax changes. You need to be sure where and how your cashflow will be affected by these.

Shortages and supply issues

The supply chain is, as you will all know, considerably less stable than it was pre-pandemic. Late supply clauses, cancelled contracts, and overstocks could all result in a bit hit on your cashflow. We are advising people to forecast for delays from just about every part of the world (including within the UK) and consider the effect this could have on their cost of business. Fuel prices, armed conflict, continued problems with Brexit red-tape and other factors are all having a cumulative effect. A range of other issues from driver shortages through to a lack of actual shipping containers are also making things very difficult in terms of pricing and interrupted, delayed, or even completely stalled supply schedules. All in all, this adds up to a nightmare when it comes to cashflow. Even the least affected businesses need to consider how this could impact them.

Your customers are also feeling the squeeze

When prices rise, payment times tend to get pushed. It may well be time to tighten up your credit control and check the credit status of some of your customers. Non-payment is, after all, the ultimate sting when it comes to cashflow.

There is a lot to be thankful for. We have emerged from the pandemic in a better position than many predicted, and the economy does seem to be rallying quite well which is all good news. So, the advice from us is ‘be optimistic, look to a strong recovery but be realistic about your cashflow.’

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Latest Insolvency numbers are released for March 2021.

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The answer to the question ‘when is a good time to close your solvent business’ is never an easy one. However, with capital gains tax and asset disposal relief both still working in your favour, if you are looking to close your solvent business then 2021 or early 2022, may well be the time to make the move. If not, you could see a much less favourable tax landscape in the future.

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I thought I would provide some thoughts on how the change may affect you because, despite the budget not quite producing the fireworks some were predicting, it did have a lot worth discussing in there.

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The Insolvency Service produce monthly figures for both corporate and personal insolvencies and to be honest I rarely comment on them. Partly because insolvencies are seasonal so increase in the first and third quarter of the year and decrease in the second and fourth quarter and partly because there is not much too talk about.
 
However, I feel that there is a clear trend and whilst on paper the trend appears to be good news it hides several issues which will hit the economy later in the year.

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Looking ahead isn't always easy but despite 2020 begin one of the most unusual years ever for many of us, there are some signs of stability ahead.

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Over the last few days, a number of extensions have been announced which it is hoped to assist business affected by COVID 19. These are as follows;

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Will I get my money? The order of payment for creditors.

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The Government Announces new rules regarding Pre-pack sales to be implemented.

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Measures put in place to protect businesses from insolvency will be extended to continue giving them much-needed breathing space during the coronavirus (COVID-19) pandemic, the government announced today (24 September). UPDATED 27 November 2020

Government gives businesses much-needed breathing space with extension of insolvency measures

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Taking stock – Are your customers stock levels a threat to your cashflow?

There is a potential situation arising that could soon be causing some insolvency related issues, cashflow problems ... more

Changes to the regulations surrounding insolvency could spell trouble for SMEs. This article takes a look at what some of these changes are and the impact they could have on cashflow.

Supplier beware – Credit control and the Corporate Insolvency and Governance Bill 2020

Insolvency legislation rarely makes the news which is probably why one of the biggest changes to the way it works ... more

Dividends, Overdrawn Loan Accounts and Insolvency - Updated

This is a very common problem in insolvency and here is the reason why!! At some stage, a director of a new ... more

Keep your cashflow forecast up to date – 5 tips and 1 warning

Why then are we bothering to dedicate a full article and video to cashflow forecasts if they are so common? Well, ... more

Since the Covid-19 pandemic insolvency has been on the minds of many business owners. Pressing the panic button is unlikely to be the right response though.

Am I insolvent? – Why pressing the panic button may not be the best idea.

The initial shock of the lockdown. When the government announced the Coronavirus lockdown our telephone began to ... more

Bankrupt, Insolvent or in need of rescue?

What happens when you reach out to an Insolvency Practitioner? I doubt any business owner ... more

What are employees entitled to in an insolvency process?

One of the major aspects of any insolvency is what will happen to the employees. Any news story in relation to an ... more