Financial resilience - Weathering the financial storm
Read time - 10 minutes
Building financial resilience is something our Yes Business Can event guest Levi Roots has had to do since taking his Reggae Reggae Sauce business from market stall favourite to much-loved brand.
Watch the replay of our event ‘Weathering the financial storm’ where Levi Roots is joined by a panel of business leaders to discuss access to funding and sound financial planning.
And we’ve got some further guidance to help you build your own business’s financial resilience.
5-step guide to building financial resilience
1. Identify your vulnerabilities - Do you rely heavily on one key customer or supplier? What would happen if a piece of equipment broke? What outside factors might affect demand? Taking time to assess the potential risks to your business and putting steps in place to mitigate against them can protect you from unexpected expenses or losses.
2. Plan ahead - There’s no such thing as being too prepared when it comes to building financial resilience. Setting clear, regularly-reviewed budgets and targets and regular cash-flow forecasting will ensure you have a clear picture of progress.
3. Aim for sustainable growth - Business growth is always good, but rapid growth can bring working capital challenges if you’re spending a lot upfront on materials and labour. It can also result in recruitment and equipment costs which hadn’t originally been budgeted for. To ensure your growth efforts are sustainable, offer customers realistic credit terms and limits to help support healthy cash flow and avoid tying cash up in excess stock by ordering too much or too far in advance.
4. Build a strong network - Challenging times are easier to navigate if your suppliers and customers are willing to support you and offer flexibility, for example, with longer payment terms. Having the right expertise behind you can also help.
5. Build strong cash reserves - Having a cash buffer means you’ll be in a better place to overcome unexpected events and capitalise on any opportunities that come your way. Setting up an automatic monthly payment or funnelling away a percentage from every sale is a great way to build up your reserves pot and can ensure you’ve got enough to manage VAT and other tax liabilities when they fall due.
EcoMove: Going for growth in a difficult climate
As the UK emerged from lockdown in June, electric vehicle retailer EcoMove opened the doors to its flagship Bristol store – complete with indoor test track. Co-founder Teddy Thompson shares his advice on going for growth in a difficult climate.
Make sure you have a clear USP - To have the greatest chance of success you’ll need something that makes you stand out from the crowd and offers real value to your customers. We felt confident investing in our all-electric test track as we knew it was truly unique. Our store is also very different to competitors’. Rather than having lots of products on display,
it has a sleek and modern look and feel - more like an Apple store than a traditional bike shop.
Don’t ignore opportunities - Lockdown presented a huge challenge for retail businesses, but the pandemic also put the spotlight on green issues while social distancing means people are more wary of public transport. This created the perfect opportunity for us to provide people with alternative forms of sustainable transport.
Have a laser focus on costs - Identify any areas where you can make savings, no matter how small they may seem. The lower you can keep your cost base, the longer you’ll be able to ride out any downturns. We managed to make significant reductions by focusing on utilities, internet provision etc. There are some areas where you can’t cut back too much though, like marketing. You need to ‘fuel the fires’ and make sure people know about your growth plans.
Be flexible - It’s important to make sure any growth plans can be adapted as needed and this becomes even more essential in a tough economic climate. Put your ego to one side and don’t be afraid to make changes or scale back plans to give yourself the best chance of success. Constantly challenge yourself and ask: “is this the best way?”
You can read more about how EcoMove and Levi Roots approached financing their business in this interview with The Times.
How to make your cash reserves last the distance
Managing liquidity will be a key priority for businesses, as working capital requirements grow from increased trading and the easing out of government financial support measures. Paul Gordon, Managing Director, SME & Mid Corporates, Commercial Banking, highlights steps businesses can take to make their cash reserves go the distance.
Develop a robust cash-flow forecast - Forecast for a period of at least 13 or 17 weeks to cover the impact of the next cycle of quarterly rent and VAT. Our Business Finance Assistant can help with accurate cash-flow forecasting.
Document your end-to-end cash flows - Include current supplier transit times and payment periods and customer collection profiles to identify any working capital funding gaps.
Improve invoicing - Ensure accuracy to avoid any disputes and delays and speak to customers about what they need to ensure invoices can be approved simply and quickly.
Communicate with customers and suppliers regularly - Finding out more about their plans can help you predict any knock-on effects on your own finances.
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