Business considerations

As the Lockdown restrictions gradually ease and business starts to get back to a ‘new normal’, we wanted to share some best practice pointers with you.

Cash is more Important than ever

Cash is the life blood of any business. There are lots of important things for Directors to be responsible for such as Sales, Margin, Overheads, Profit, Quality of Delivery, Clients, all important because they all indirectly impact Cash.

However, whilst Profit is important and it is the reason why businesses exist, it is not more important than Cash, we all need to consider:
“Sales are vanity, Cashflow is sanity, but Cash is King”. What this means is that whilst it may look better to have increasing Sales, the most important focus for a business has to be Margin and Cashflow. Without Cash employees cannot be paid, suppliers cannot be paid on time, a business will not be able to continue to trade without Cash

Cash Flow

You need a detailed Cash Flow Forecast and if possible, a joined-up Profit and loss and Balance Sheet, interactive with cash Flow, this is often referred to as a three-way forecast. This should focus on the Medium Term Timeline – it will enable you to really understand the impact of decisions made right now on future cash flow, a minimum of a rolling 12 weeks

Liabilities

Many businesses have been deferring liabilities (Loans, VAT, Tax payments etc), don’t forget to add them back into your CashForecast, you need to understand what this means in the medium term, especially if you are trying to work out whether to borrow additional funds – consider how much you need AND can you generate sufficient cash to repay it?

Management Information

Be in possession of accurate management information, this will be crucial to enable you to make good, strategic and agile business decisions as well as giving you visibility over any deferred liabilities and the new repayment dates. The data can also highlight any additional funding requirements, whilst allowing you to stress test and fine-tune your exit strategy. Always keep Cash at the forefront of your decisions.

Pipeline

Take the time to interrogate your pipeline, including any transactional work that dropped off at the end of March and other opportunities arising. This will help to assess the level of activity and the likelihood of these coming on stream. Also, be aware that where your business has diversified, then this may have changed. A sensitivity analysis is recommended to identify any possible delays in expected return.

Supply Chain

Carry out a forensic review of your supply chain e.g. components or staff, linking back to your pipeline and/or order backlog.

Staffing Levels

Continue to analyse your staffing levels within your return to work plan, being sure to measure both positive and negative capacity issues. For a departmental or diversified business, analyse each team, production area or service line as they will all come back online at different speeds.

Customers/Clients

Stay close to existing and previous customers/clients, however this is done, email, social media or most effectively by phone/conferencing facilities. Your customers/clients will feel valued and looked after. In the long run this may also help build your trusted advisor/partner/key supplier status. You should aim to feed the pipeline by re-confirming (or re-engaging entirely) in order to add certainty to a period which will be very difficult to predict.

SWOT Analysis

Carry out a SWOT Analysis, Strengths, Weaknesses, Opportunities and Threats. Do your direct/indirect competitors have any weaknesses, are there any gaps in the Market Place that you can seize upon?

Internal Communication

Invest in your ongoing Internal Communication strategy. This will ensure that everyone within the business knows what is expected and any appropriate parameters to work within. This is vital in relation to pricing. All Client/Customer facing personnel need to have a full grasp of the current pricing model, in order that value can be clearly articulated and where possible margins understood and protected.

Review your current retention model and consider whether instead of extracting all profits, you should set a new benchmark so that the business can retain cash and reserves for contingencies.

Conclusion

As we move towards the ‘New’ normal business, we know that it will change, but do remember that we are here to help. If in need, then please do not hesitate to get in touch with us.

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