Early in July, the business analyst firm Beauhurst published a survey of new and growing businesses to find out how “at risk” businesses are because of COVID-19. These are their findings for Worthing:

Potentially positive impact – 14.8% 

Low risk – 37.1%

Moderate risk – 37%

Severe risk – 11.1%

Critical risk – 0%

Worthing is fortunate to have a well-established and diverse business community, but several sectors have been hard hit by the pandemic. Notably tourism, hospitality, retail, and early years education. We are determined to do our bit to help. That is why we are publishing a series of articles, in collaboration with local business consultant Denyse Whillier, about how local businesses can plan and prepare to return quickly to full performance.

The top priority for all businesses is conserving cash. It is no exaggeration to say that businesses live or die by their cash flow. Even profitable businesses can go under if faced with an unexpected bill or a sharp downturn in demand. For many local businesses, the COVID-19 pandemic has left a huge hole in their income that is not going to be filled at once.

There are a few actions you can take to improve cash flow. We recommend you start with these five.

PUT TOGETHER A 16-WEEK CASH FLOW FORECAST

Your very first action should be to determine whether your business is in emergency mode or if you have enough cash to see you through the next few weeks. The way to figure out this is to put together a rolling 16-week cash flow forecast.

Why 16 weeks? Because this will capture all the most important financial figures, including weekly and monthly receipts and payments, as well as quarterly payments such at VAT. This will enable you to spot any shortfalls in cash ahead of time and take urgent steps to protect your business.

Discuss your forecast with your management team, business advisor and accountant. If there is a shortfall, speak to your business advisor and accountant and get their advice about the best way forward. They will be able to help you put together a plan to manage the situation, and advise on measures such as reducing outgoings, deferring tax payments and other government measures as well as boosting revenues.

MANAGE YOUR CREDIT TERMS

Small business owners have very personal relationships with their customers, meaning that conversations about credit terms can feel awkward. But this does not mean you should be giving free financing to your customers, especially at such an uncertain time.

Think of it this way. People do not walk into a shop and leave without paying for their shopping – unless they are forgetful or a shoplifter. There is no reason it should be different with you. Do not be afraid to chase up late payers by gently reminding them that their account is overdue and asking when you can expect to receive payment.

The truth is people who ask to be paid get paid first. If you do not want to risk damaging your relationship with a client, keep things at a distance and use a freelance credit control person to make firm but polite calls on your behalf.

REDUCE FIXED AND VARIABLE COSTS

Now is the time to look at your fixed and variable costs. Get a second pair of eyes to review all your expenses – even if you have done a recent cost-cutting exercise. You may be surprised at what you overlooked.

Explore whether it would be possible to turn fixed costs like rent into variable costs. Homeworking means it may be possible to downsize and/ or move to a co-working space with a rolling contract and reduce one of your biggest expenses.

If staffing is a significant cost for your business, as an alternative to redundancies, you could consider options such as reducing working hours to trim the wage bill. You may have employees – both male and female – who would appreciate the opportunity to work shorter hours to manage childcare and caring responsibilities.

INCREASE GROSS PROFIT MARGINS

Study your cost of sales to see whether there are opportunities to increase gross profit margins. Unless you have been significantly undercharging, now might not be the time to increase prices. But there are other options such as negotiating a better price with your suppliers, reducing waste and readjusting your sales mix to focus on more profitable products and services.

USE PURCHASE ORDERS

Purchase orders are often overlooked. But they are a useful first step in a business transaction for some sectors. This is because a purchase order is a legally binding document between a supplier and a buyer. It details the items the buyer has agreed to buy together with the price they have agreed to pay, the delivery date and the terms of payment for the buyer. An invoice is issued by the seller when the product has been delivered or the service has been completed.

FINALLY

If you have not done so already, check what government help is available. You will find a full list of support available to British businesses here. While Martin Lewis’ Money Saving Expert website has a set of constantly updated guides designed to help you navigate the financial fallout from the pandemic.

If you would like to learn more about Denyse and how she can help you in your business, please take a look at our recent ‘Spotlight on’ feature here.