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Cash Management: Planning beyond the support measures

The past year has been tough on many business owners, with recurrent lockdowns and tiered restrictions forcing business owners to adopt a 13-week cashflow cycle and concentrate efforts on short-term decision making. While the climate of uncertainty is far from over, businesses that begin planning for the longer term may be in line for post pandemic rewards.

Preserving cash reserves

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At the beginning of the first national lockdown we saw many business owners with emptying order books and trading activities halted. Forcing those to focus on preserving their cash reserves, whilst looking to reduce costs in any way possible. The provision of Government support measures, such as Coronavirus Business Interruption Loans (CBILS) and Bounce Back Loans (BBLS), in addition to the furlough scheme, offered a lifeline at a critical time. Many businesses were able to make use of these schemes allowing them to survive for longer once their pre-Covid cash reserves ran dry.

Have you started planning for the removal of support measures?

At the start of 2021 and with a third national lockdown in place, business owners may feel little has changed. With the furlough scheme and 100% business rates relief in place until the end of March, many businesses have become reliant on such support measures and have yet to start planning for their removal. The Chancellor’s recent decision to extend an additional £4.6bn one-off top-up grants to hospitality & leisure and retail businesses is indication of the severity of the ongoing constraints on businesses in these sectors particularly, many of which have been closed for the best part of a year.

How to plot the path to recovery?

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 Although there has been considerable uncertainty over the past year, some business owners have found the capacity for reflection and planning. With some demonstrating incredible leadership by adopting a positive mindset and exploring alternative ways to emerge from the pandemic in a stronger position, with a more resilient and sustainable business. Rather than getting stuck in a rut with a 13-week working capital cycle, these forward-thinking business owners have developed a bespoke financial model, which they can use to maximise opportunities and plot the path to recovery.

With the current lockdown in place until at least 8th March, businesses should be using any time available to them to re-evaluate their strategy and consider the medium and long-term viability of their business model.

Some tips on switching to a longer-term thinking mode follow:

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Keep an open mind:

Be prepared to re-assess every aspect of the business from its products and services, to how it operates, its supply base and its customers. Most businesses will have a sales pipeline, but how might this change in the future? What will demand look like? Business owners should consider what they have learned during the pandemic and be prepared to do things differently.

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Have a plan:

With the end of business support measures in sight, business owners should plan at least 12 or 24 months ahead. This should include financially modelling their business to assess the impact of high-risk moments when the furlough scheme ends, loan repayments or deferred VAT fall due and working capital is required to fund an increase in business activity.

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Invest in technology:

As businesses emerge from the pandemic, there are likely to be growth opportunities. By investing in technology, businesses will be better equipped to create business efficiency, value and take the right business decisions.

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Create a bespoke financial model:

To facilitate longer-term planning, business owners should create a bespoke financial model, which includes an integrated profit and loss, cashflow and balance sheet. This model will enable them to challenge assumptions and react to shifting market conditions as recovery gets underway. If there are problems with the vaccine rollout for example, businesses will be able to adjust their financial model to see how this might impact business performance.

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Lead the way:

As they plan for the future, business owners should aim to inspire employees and strengthen customer and supplier relationships. Nurturing an entrepreneurial mindset while creating a culture that rewards positive behaviours could become an important differentiator in the future. This approach could help to attract and retain talented people at the same time as improving business resilience.

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Play to your strengths:

Small and medium-sized businesses are more agile than larger organisations to react to market changes and adjust their business models accordingly. When planning for the future, business owners should ensure agility remains a core strategic attribute.

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Don’t lose sight of short-term risks:

When planning for the medium to long term, it is important not to lose sight of short-term cash considerations. Maintaining a short-term focus is vital to protect cashflow in challenging trading conditions.

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