April 2022’s Business Club was our first in-person event following two years on zoom. It was so good to welcome Club members back to the Shipleys Godalming office.
The world of business has changed phenomenally since the Club last met in-person. Despite the lifting of pandemic-restrictions, businesses still face significant challenges and upheaval in the current trading environment.
A case in point is in the results of a recent survey of Owner Managed Businesses in the UK. It revealed that:
- 87% of these businesses feared that inflationary pressures will impede their growth over the next 12 months
- 64% of SMEs reported that rising energy costs are impeding their ability to deliver
- 59% report that staff recruitment and retention is now presenting more of a challenge than 12 months ago with only 3% reporting this is now less of a challenge
Pressures on business finances
Despite the Government’s former grants and loans, rising costs and difficulties in sourcing supplies because of the war in Ukraine are still making life tough for businesses – and their finances in particular.
We are also into a new Tax Year which has brought National Insurance increases. On the horizon, in a year’s time, are higher Corporation Tax rates too.
Resilience and agility
One thing businesses have shown however over the pandemic is their tremendous resilience and agility. This is greatly helped by having a healthy financial position. In the Club session we took a closer look at some of the essentials that can help businesses get financially fit.
Cash flow
A key contributor to the financial wellbeing of a business is a healthy cash flow position. This enables it to cope with sudden challenges and opportunities. Adrian Frost from Your Right Hand Finance Team kindly highlighted 3 key areas which businesses should monitor closely to bolster their cash flow. These were:
- Credit control – tightening the process and being more proactive and efficient to ensure the business does indeed get paid on time.
- Margins – reviewing margins across the business – for example, assessing the pricing approach and profitability levels across the organisation.
- Spend – analysing spend across the business to see where it is proving to be most effective and efficient (and where it isn’t). Armed with this information, businesses can make the changes they need to improve their cash flow.
Financing
Another lifeline for businesses has been financing and there are lots of providers offering funds for different needs and situations. Russell Harvey from Metro Bank kindly summarised the current financing landscape and highlighted different options, now many of the Government-backed finance schemes have been withdrawn.
The appropriateness of each finance option very much depends on the business, for example its size, the nature of what it does and what it requires the finance for and when. Examples discussed included:
- Overdrafts
- Different types of bank loans
- Credit cards
- Asset finance to upgrade equipment
- Invoice finance – releasing cash from invoices awaiting payment
Just in time financial information
Another aid to financial fitness is forecasting and having access to just-in-time information to inform management decisions. This helps a business to spot problems on the horizon and then mitigate any potential risks.
HMRC’s Making Tax Digital programme has led many businesses to switch to digital management accounts. One of the benefits of this is the software’s availabiity to give a real-time snapshot of the cash flow position. There are many products available to choose from and contact the Shipleys team for further information.
Financial wellbeing essentials for businesses
Club members then discussed a case study of an anonymous business and shared their observations and recommendations to improve its financial wellbeing.
Recommendations included:
- Conducting a top to bottom review of costs in the company
- Investigating invoice discounting to reduce the debtor book
- Conducting a review of wages and admin costs – could any components be outsourced?
- Tightening up the credit control process to help the business shorten the time it is paid
- Applying capital allowances for any equipment it needs to buy
- Making the most of Research & Development tax credits relevant to its operations
- Seeing if the business qualifies in the short term for one of the Government’s Additional Restriction Grants
- Considering leasing in the short-term for any equipment required, but which the cash flow of the business would currently struggle to purchase.
Summary
Having a tight control of finances will no doubt be a key objective of many businesses for the rest of the year. Financial fitness comes from a number of different areas. It therefore pays to keep a close eye on different aspects of a business’ operations to check each is supporting, and not draining cash flow. Sometimes a number of small changes can make a big difference.
Even though Government-backed loans and grants have reduced in number, there are other finance options available to businesses. For more information see this summary – Finding the right business finance.
It also helps to seek out specialist advice. This can lead to businesses uncovering ways to effectively bolster their financial position and avoid any nasty surprises as they grow.
Thank you to all the Club members who joined us at our April event. If you would like to join our future Business Club events, please contact the Shipleys’ Godalming team for more information.
Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary.
Copyright © Shipleys LLP 2022
Related Resources
How owner managed businesses are faring in 2022
Finding the right business finance
Corporation tax rate rise implications
