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Understand your finances

It’s vital that you completely understand your business’ financial position during an economic downturn. You need to know how much cash you have and whether it can sustain your operations during tough times. 

Create a cash flow forecast that shows how much money you expect to receive, and how much you expect to pay out. Understanding and predicting any changes in your cash position will give you time to plan for future cash needs and take appropriate action. It will allow you to make informed decisions with an understanding of the cash you have available now and in the future.

You should be continually reviewing your business’ budget and finances during a downturn. Monitor what activities are producing the best return on investment and adjust your forecasts accordingly.

TaxAssist can help with your cash flow management including preparing a cash flow forecast for you, helping you develop one yourself or reviewing your existing forecast to provide a critical eye on your plans and the assumptions that underpin the forecast.

Review costs

Challenging economic conditions can often provide a good opportunity to analyse your expenses and decide where they can be reduced.

Consider all your costs including raw materials, energy supplies, software and magazine subscriptions, travel expenses, insurance, internet and phone bills.

Look for ways to cut those costs such as contacting suppliers and negotiating a better deal, using business service price comparison websites to find cheaper prices, cancelling unnecessary subscriptions and switching from physical to online meetings.

Focus on key performance indicators

Key performance indicators (KPIs) are an important way to monitor the success of your business and very useful during challenging economic times.

Keeping track of how you are performing will help to keep your operations on track and achieve the success you want. Setting targets linked to your business goals and objectives also helps to ensure you spot any potential problems before they occur.

KPIs can be financial or non-financial and cover a wide range of areas including increasing the number of customers, improving sales revenue, boosting customer satisfaction levels and enhancing profitability.

Putting up your prices

It might seem counterintuitive when times are tough for your customers, but raising your prices can be one way to protect your business during an economic downturn.

There are ways to do it without alienating your customer base such as segmenting your clients and deciding which are likely to be less sensitive to price increases. This could be people with significant disposable income or customers new to your business.

Being honest and open with your customers about the reason for price rises is important too. Such transparency can encourage customer loyalty, particularly if you emphasise factors that they particularly appreciate such as strong customer service, added value products or services and fast or free delivery. 

Supporting employees

Tough times can lead to anxiety and worry among your employees which causes a drop in productivity and other issues that could damage your business at a time when you need to be operating well.

Be honest and transparent with your staff about any cost cutting measures you need to take because of the economic situation and involve them in decisions. Take on board their feedback and ideas for how your business can deal with the economic conditions. 

Stay on top of invoices

Getting paid on time is always important but it’s absolutely vital during challenging economic times. Unpaid invoices can have a significantly negative impact on your cash flow.

You should monitor your customer invoices to ensure you’re being paid promptly. If not, take steps to get the bill settled by contacting the customer and asking why they haven’t paid.

There are other things you can do to ensure prompt payment including making sure you issue accurate invoices that contain all the required information, making it easy for customers to pay by offering various payment options and maintaining strong and friendly client relationships.

There’s more detailed advice on how small businesses can deal with late payments here.

Access business funding and support

When economic times are hard and interest rates rise, it can be harder than usual to find business finance, but you still have options.

Many traditional banks and alternative lenders still provide funding during tough times and you might be able to access grant and support schemes run by the Government, local councils and other organisations to help businesses deal with an economic downturn.

Business membership and networking groups can also be useful. Meeting other founders to make connections and share ideas can help you tackle the challenges of tough economic times.

How TaxAssist can help

TaxAssist can help you with the right advice to support your business. While our expertise covers tax, accounting, bookkeeping and payroll, we can also connect you with other providers we work with both locally and nationally.

Contact us to find out more about our services and to book a free video or face-to-face consultation.

Date published Jan 6, 2023

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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