The Spending Review
We all know that the government had to act. Nevertheless, seeking to cut our deficit faster than anywhere else in the world at such a fragile stage in the economic recovery is a calculated gamble. Essentially the government is betting on businesses in our region (and elsewhere) digging the country out of the hole by filling the gap left by the £81 billion in cuts and 490,000 job losses. That is asking for an awful lot.
If it doesn’t happen, many social commentators say there will be riots on the streets. R3, the Association of Business Recovery Professionals, is predicting that 148,000 more small businesses will fail.
If the country is going to avoid the devastating effects of losing that bet, businesses will have to step up to the plate by becoming more successful so that they create more demand, more jobs and more wealth. Most crucially I think, businesses must make sure now more than ever that they control and measure how they are doing – especially the money side of things.
So what do you actually need to do? I recommend the following six key actions.
- Have up-to-date, accurate accounts – produced monthly at least.
- Have detailed 30- or 90-day cash flow forecasts, depending on the length of your trading cycles, if there is any danger of being short of cash
- Know what your cash flow predictors are (e.g. sales leads, new business won, trends in debtors/creditors days, large payments such as VAT and tax bills.
- Do 12-month cash flow forecasts based on the above predictors.
- Act immediately and proactively if the forecast shows you can’t pay anyone on time. Agree deferred payment terms, or agree to make cuts in overheads.
- Fill in our financial healthcheck (see below) to make sure you are doing everything you can to help.
To play our part in ensuring that the country wins rather than loses, we are offering a free Financial Healthcheck for the key decision-makers in RG postcode businesses. Please contact me or call 0118 923 5800 if you’d like to know more. (Note for K&H clients: we will go through this Financial Healthcheck with you at your annual accounts meeting anyway.)
In one area that is close to my heart, it is interesting that in relation to public sector reform, paragraph 1.88 of the 2010 Spending Review suggests:
- Giving communities the right to buy or run public assets and services that might otherwise close or face significant reductions
- That public sector workers form employee-owned co-operatives and mutuals to take over the services they deliver
- Giving parents, teachers or community groups the right to bid to start new schools
I would recommend that small business owners consider employee ownership or profit participation for their team members as a way of keeping them focused and motivated in the absence of financial rewards.
Please post a comment here with your own thoughts.
P.S. Thanks to Steve Pipe of AVN for help with this blog post.