Less than 10% of business owners have put plans in place to manage cashflow

With the UK economy expected to be in a recession until at least the middle of 2023, many businesses are already feeling the pinch, with rising energy prices and the cost of living affecting the levels of disposable income from consumers and the spending habits of businesses.

With this in mind, online auction specialists BPI Auctions has surveyed UK business owners to see just how prepared they are for the upcoming recession. They’ve also worked with experts to understand how companies can prepare their finances to ensure they can weather the storm.

The research revealed that almost one in three (31%) business owners are more concerned about the recession affecting their business than the pandemic. Understandably, with the government grants available for struggling businesses during lockdown no longer accessible, owners will need to look for alternative solutions to ensure a steady flow of cash within the business and ensure you recession-proof your organisation as much as possible.

Reduce overheads and increase capital
With one in ten (10%) respondents claiming they are concerned about investing more money into the business, now is the time to look at the options for increasing capital and reducing overheads.

Daniel Kilroe, business development manager at The Insolvency Experts, explains: “The main way that business owners can future-proof their business ahead of the recession is to review their overheads and try to reduce cost, either by passing the cost on to their customers or by mitigating it entirely. Many businesses have seen their fixed costs increase by as much as 40 to 50% over the past couple of months thanks to soaring fuel prices and inflation-linked to macroeconomic and geopolitical events”.

“Unfortunately though, no one can predict the future, and many businesses may even see their overheads quadrupling overnight as a result of an event entirely out of their control, whether that’s a resurgence of the pandemic, further Brexit-related issues or the continuing conflict in Russia. Therefore, reviewing your bottom line (and whether there has been enough cash there historically) can help you to plan your next steps”.

If your overheads are increasing at a rapid rate or you need a cash injection to boost your bottom line, streamlining your excess stock and equipment is a simple and efficient way to raise funds. Online marketplaces can help businesses sell unused and redundant stock, as well as allow you to raise cash and create space to replace or upgrade your existing equipment. Working with specialists such as BPI Auctions will help you turn around the sales and collection of your assets extremely quickly and at the best possible price. .

Managing cash flow
Cash is king, regardless of the business outputs or sector, so it is concerning to see that just 8% of business owners admit to putting plans in place to manage cash flow during the recession. A further 10% of respondents admit they are concerned about the levels of savings within the business.

Not having a transparent overview of the cash flow of the business could mean that if you have a dry spell with sales, you can put a plan in place to ensure you don’t end up in severe debt or at the point of needing to call in the liquidators.

Managing director of Business Rescue and Insolvency Specialists Forbes Burton, Rick Smith, said: "Using cash flow forecasting and reporting can help reduce risk in a business as you can see when money is likely to be tight. It helps to see where cash can be moved around in certain weeks or months to be able to make the debt repayments in a timely manner.

"It can also show when money is due to be paid to you, especially if you are offering 30, 60 or even 90-day payments on invoices. Knowing that the money will be in at a certain time means you can plan to buy stock at that point or run a promotional campaign to generate more sales.

"The looming recession is likely to make the necessity for cash flow forecasting even more significant. As overheads go up, businesses will need to see how this is going to impact their outgoings and where savings may need to be made.

"We are finding that many of our clients come to us because they haven’t used a cash flow forecast before, and they have literally run out of money. This is often because they’ve spent what wasn’t going to be there, and the whole plan has unravelled. We would advise that if a business hasn’t got a cash flow forecast in place, then they should get one as soon as possible. It can easily be set out and can literally save a business."

Correct forecasting and modelling
Alarmingly, BPI Auction’s research revealed that only 2% of business owners feel like their current accountant has provided them with the support to put a plan in place ahead of the recession. Whether you are looking for a new financial partner or reviewing the service of your existing accountants, business owners should be looking at the additional value that an organisation can provide you - as well as looking at the current state of play, they should be advising on how you can adapt reactively for different financial scenarios or looking at solutions to inject cash into the business.

Simon Tombs, managing partner at Monahans, the south west’s leading accountancy and business advisory firm, said: “We are in a period of uncertainty, with no telling how long it will last, so businesses should take as much action as they can to prepare for further economic ups and downs and potentially a recession.

“Forecasting future demand and modelling several different scenarios is essential for businesses to prepare for cash shortages and pinch points in supply chains. Forecasts should be revisited and revised regularly as economic circumstances and business-specific circumstances change, with contingency plans formulated as far as possible to try and smooth any bumps in the road. Key to this forecasting process is up-to-date financial and other business information, so decisions are informed and made on the basis of good data. Overhauling and making sure the production of management information is efficient and accurate is a key feature of protecting your business from recession, as you shouldn’t be caught “on the hop”.

“For many businesses that employ significant numbers of staff, and whose staff are key to delivering the goods and services they supply, retaining those staff and incentivising them in the right way is key. It may not even be cash but personal development they’re after, additional holiday or other rewards that are not expensive to deliver (in cash terms at least) – your best strategy is to communicate with staff to ask what they want and how you can help them feel valued.

“Internal processes such as credit control should be reviewed to ensure that customers who are financially fragile are paying on time and supplies of goods and services to them are monitored, so your business is on top of the level of risk there is in your customer base – this, in turn, may affect the forecasting processes outlined above.

“Forward planning, forecasting, engaged staff and up-to-date data should really help your business weather the current storm.”

Henry Spencer, chief operating officer at BPI Auctions, said: “Our research revealed an alarming number of business owners are not financially prepared for the recession or do not have the right support networks in place to allow them to make the right decisions when it comes to keeping the business afloat.

“We are here to help and have a proven track record of supporting businesses with raising capital. Disposing redundant and surplus stock, equipment and machinery through online auctions is an effective method for those wanting to restructure their business to strengthen business resilience.”