We might be in a recession but there are still opportunities for businesses who manage their finances well and provide an outstanding service for their clients. We asked MB Associates’ Managing Director, Monica Bradley and John Boss, Founder of Aegis Financial Planning, for some tips on how to protect your business in the current economic downturn…

Start putting protective measures in place now

Let’s be realistic. The government has described current events as ‘unprecedented’. We’re officially in a recession and it’s the worst one we’ve ever seen. The Office for National Statistics (ONS) has reported that gross domestic product (GDP) slumped by 20.4 per cent between April and June 2020 due to the first lockdown. Last October, the Institute for Fiscal Studies said that the UK ‘faces a long road to economic recovery in the wake of Covid-19.’

However, even in a recession, there is a market for businesses that manage cash flow well and serve their clients efficiently. So be optimistic but realistic. If you need to save money, make cutbacks or change the way you run your business and look at those factors now rather than waiting for a bigger downturn.

Look at your costs

‘Make sure that you take a good look at your costs in all areas such as fleet, telecoms, energy, water, rates, borrowing costs and procurement,’ says John Boss from Aegis Financial Planning. ‘You don’t have to spend ages doing this as there are specialists who will do this for you without charge.’

Ensure you are using all tax allowances

A collective approach to your finances can be a good thing. ‘Let your accountant and financial adviser work together to ensure that you are only paying tax that is necessary,’ says John. ‘In addition to reducing costs, if you can reduce your tax burden this will have an impact on your finances in uncertain times.’

Secure finance before you desperately need it

Similarly, don’t wait until you’re cash-strapped to secure finance if you think you might need it. Lower-cost finance such as a small business loan or a bank loan will take time to secure. Gather documentation now such as tax returns and financial statements and look at your options.

The government offers Start Up loans for businesses with amounts ranging from £500 to £25,000 to start or grow your business, provided it has been trading for less than two years, although there may be delays in applications at present due to the pandemic. You may also be able to borrow money from your existing pension arrangements, which is a very tax-efficient alternative to bank borrowing.

Manage cash flow regularly

Take control of your cash flow and monitor it regularly. This could mean the difference between surviving or having to close your business. Use a spreadsheet and update it regularly or use accounting software like Quickbooks, Sage or Free Agent to help you. Most accounting software offers a dashboard for cash flow. If preparing your own cash flow spreadsheet, include the following information:

• Confirmed sales

• Sales in your pipeline

• Average number of days to receive payment

• Average number of days until you pay your suppliers

Use a spreadsheet to set up projected revenue and expenses for the next 12 weeks and update it weekly. ‘You may also wish to offer your debtors a small discount for paying early, for example within seven days, rather than waiting for the standard 30 days,’ says John.

If you do have any consistent cash balances within your business, ensure that these monies are working for you. As interest rates are low, returns on cash are virtually non-existent. However, there are low risk options that a financial adviser could suggest to significantly increase returns.

Stress-test your business

Look at what would happen if your suppliers increased their prices or if key people in your business couldn’t work due to illness or injury. Have contingency plans in place if either of those scenarios were to occur. ‘Insurance can be taken out to cover some of these eventualities at minimal cost,’ says John.

Look after the wellbeing of your employees

Be sure to have a programme in place to help the overall health and happiness of your staff. ‘Bear in mind your staff will be feeling additional stress and uncertainty over their health and finances, so ensure they have access to information and support in these areas,’ says John. ‘Providing a programme such as this can have a substantial impact on productivity and therefore cash flow and profits.’

Be clear on your messaging

Take time to really consider the type of clients you are currently serving and if you are getting your message across effectively to potential new clients. Try to be objective… ask yourself if your product or service is genuinely superior or more appealing than your competitors and establish what makes you different or unique from the competition. Do you specialise in a particular sector and do you have expertise in that sector? Your marketing message should be concise and simple – you should be able to say what you do in a short sentence.

Expand your client base

Don’t be tempted to rely on one or two key clients for most of your income. Even if you have strong relationships things can change quickly. Your clients may love working with you but may develop their own money worries. Try to grow your client base.

Credit check new clients

Conduct a credit check on a new client to minimise the risk of not being paid. There are various companies online who can conduct credit checks for you. If it’s a limited company, you can check the company’s accounts on the Companies House website. Have a written contract or booking form that outlines the services you are providing, your terms of business and the agreed fee. If it’s a new company with little or no credit history, you may wish to request upfront payment.

Serve existing clients well

‘Make sure your current clients feel valued and serve them to the best of your ability,’ says MB Associates’ Managing Director, Monica Bradley. ‘Not only will you be likely to retain their business or get repeat work – they will also be more likely to recommend you to other organisations in your sector. Recommendations are cheaper than advertising. A happy client will be a great ambassador for your business.’

Take out business insurance

If someone decides to sue you and you don’t have insurance, it could spell the end of your business even if things are generally going well, so make sure you protect your liability. You are legally required to have employer’s liability insurance that covers you in the event of a staff member suffering illness or injury as a result of working for you.

Depending on the type of business, you may also wish to consider Public Liability Insurance (PL) which covers you for claims made by members of the public, such as accidents or damage to property. You may need Professional Indemnity Insurance (PI) if you provide a professional service or advice, as it covers you in the event of a mistake or if a client claims they have lost money as a result of your work.

You may also wish to consider insurance in the event of a key person within the business becoming ill or passing away. This is known as key person insurance.

Other types of insurance include equipment cover and cyber liability insurance. There is a full guide to the different types of business insurance for small businesses on the Companies House website.

Look after your suppliers

You can’t run your business without your suppliers so make sure you pay them on time and build a good reputation so that they know they can trust you. Don’t neglect their invoices. It has been said it’s better to go into debt with a bank loan or a credit card rather than miss a payment to your supplier and lose their confidence.

Safeguard client data

In this age, it’s more important than ever before to keep your clients’ data secure, including mailing list data and credit card numbers. Implement security protocols to ensure it is understood who can access what data and how. Plan how you would respond to a data breach.

Broaden your products and services

Always think ahead. What else can you do to generate additional revenue streams? ‘Don’t get too comfortable with offering one or two services – widen your range of products or services so that you have various revenue streams,’ says Monica. ‘Always look to innovate.’

Develop a reserve fund for emergencies

Hopefully, you have personal savings for a rainy day – make sure you have the same for your business in the event of the unexpected happening. Failing to set aside enough cash makes your business vulnerable if something goes wrong, but if you hold too much in reserve you may lose the opportunity to invest more funds in growing your business. Some experts recommend having three months’ worth of business expenses set aside, while others recommend six months. Talk to a financial adviser to establish what is right for you.

Find a business mentor

Finally, running a business can be an isolating experience sometimes and having someone objective to offer input and feedback can be very helpful. Find a mentor and talk to them regularly about what’s going on with your business. You can learn from their past mistakes and successes and by doing so, can achieve business growth faster. You can find a business mentor via the Association of Business Mentors website. If this is not affordable then network with others in your industry, sharing ideas and experiences.

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