The importance of planning and managing finance as you build your business recovery strategy

Sean Farnell, partner at accountancy firm Burgis & Bullock, discusses the steps business owners should be taking to recover from the COVID-19 pandemic and ensure they have strong financial foundations for the future.

My big challenge at the moment is understanding where a business is, where the business is going, how it is going to get there and how it will be financed going forward.

Hopefully we are now through the worst of the pandemic and now, more than ever, it is important businesses take a breather, take stock and find out exactly where they are today.

The economy has changed significantly over recent months and so have circumstances for business owners - businesses could be in a significantly worse position, similar to pre-lockdown or in a small number of cases actually in a better position than anticipated.

It is important to find out where you are today from a financial perspective, your customers and looking at your products and services to see if they are still fit for a post-Covid world.

Businesses may have changed their business model over the last few months, will that be sustainable? Or will it be necessary to revert back? Or should you be looking at a hybrid of the two?

After taking stock, I would strongly recommend putting in place a 90 day plan and repeating that again in three months' time. It's a lot easier to do your planning in short-term blocks and to make yourself accountable in those periods.

But cash is reality and that has never been as true as it is today. Ensuring you have the right finance must be at the heart of any recovery strategy.

A lot of small businesses will have taken advantage of the excellent government schemes, and in the case of the CBILS and Bounce Back Loans these will need to be repaid. Many businesses will also have deferred VAT and need to pay that back in March.

January to April next year will be a very difficult time for cash flow and now is the time to plan, budget and forecast to predict where the business will be in six months' time.

It might be a case of raising different sources of finance to be ready for 2021.

The good news is that interest rates are at an historic low and you're never going to find cheaper money - and there are plenty of funders available in the marketplace.

For small businesses you can always dip into personal funds for the shorter term but in the long-term you are better off going to market, and a sign of a good business is raising finance on the markets, whether that's with the bank, invoice finance or creative stock finance.

This brings me back to the 90 day plan. This is a really good opportunity now through the summer and early autumn to get the building blocks in place so that by winter, businesses are in a good position to take advantage of opportunities and ensure survival.

I can't stress it enough, break it down into bite-size chunks.

However, you have to appreciate that the situation is still changing all the time. Despite this, the key is to be on top of the numbers on a day-to-day basis.

I hate to see small businesses who only write up their records at the end of the quarter. You need to know at least week-to-week what your position is, how your cash flow is operating and what the next few months have in stall.

Take action now while you can still see the problems ahead of you by making sure you have accurate and reliable financial figures for your business.

Even if your business hasn't been hit hard by Covid-19, it's crucial to keep on top of your finances. More small businesses fail for a lack of cash rather than a lack of profitability.

Again, this is why forecasting is so important. It's no good having £1 million worth of debtors, but only having £1,000 in the bank and no debtors paying for six months.

You're going to run out of cash no matter how profitable you are and that's going to be the end of the business.

There will be some fantastically successful businesses that have thrived through the pandemic because they were in the right sectors, but are still looking after the pounds because they are vitally important.

When looking into financing options, understand why you want the money and what the implications are for the business.

Don't get too hung up on the interest rate. If the finance achieves what you want it to achieve and is affordable then you're better off to take that than something that is cheaper and less flexible.

Typically you see business owners chasing the cheapest deal or the lowest interest rate, whereas the ability to have the relationship with the lender as the business changes and develops is more important than shaving two per cent off the interest rate.

Importantly if you have any concerns it's essential to take advice and seek help. There is lots of free help out there. Take advice that is available whether that's professional or family, friends or other business owners. Don't be afraid to ask until it's too late.

But it all comes back to planning in small chunks. Throughout the recovery from the impact of the pandemic keep planning in 90 day blocks.

Before you know it you'll be 10 years into your business and it will be 10 times more profitable than it is today.