Put quite simply, small businesses have got to make the very best of what they can right now. With soaring costs, rising inflation, labour difficulties and supply issues, it is no wonder that SMEs are concerned about the pressures facing them.

The Institute of Directors (IoD) recently said that a lack of confidence in the economic outlook was ‘the number one issue’ for British businesses. According to Barclays’ SME Barometer, three-quarters of small and medium-sized companies are worried about the long-term impact of the cost-of-living crisis.

The chair of the Federation of Small Businesses (FSB) commented that half a million small businesses have ‘weeks left before they run out of cash’ and called for a cut in VAT to stimulate growth.

However, it is unlikely that there will be any tax changes for businesses before the autumn budget and the Chancellor told the Confederation of British Industry (CBI) recently that growing the economy and higher productivity in the long-term is the only way to raise living standards.

This is not an overnight solution however and doesn’t yield results in the blink of an eye.

Cash is king

As with any business in times of crisis, it is all about managing cash and liquidity. Cash is what you have in the bank today; liquidity is your ability to raise more cash quickly. This might mean converting assets such as equipment, stock, or investments to pay current liabilities.

High liquidity means a business is better prepared to cover extra costs or unexpected losses. The company is also in a better position to adapt to financial changes or operate more effectively during economic uncertainty.

Six practical steps to consider

So, with inflationary pressures and steep rises affecting margins, what can struggling businesses do now in real terms to weather the storm? Here are six practical steps to consider…

1. Build a forecast – Think about what you are going to need to sustain your business. Model your forecast, sensitise and work out your worst-case scenario. How much cash will you need, and have you got enough?

2. Manage your cash – Look at your cash flow, review and agree your payment terms, get your cash in more quickly and improve your process for chasing up debtors. Remember to communicate with your suppliers, customers, lenders, and investors. Look at improving your cash position and aim to have more cash set aside if you can.

3. Review sources of finance – What funding options do you have available, and do you think they are sufficient? Make sure that your banking facilities and all your funding options are available and up to date.

4. Test your systems – If you have an invoice discounting or financing line that you have not used for some time, make sure you can still access it. The same applies to lines for goods you are importing or exporting. If you think you might need it in the next six months, use it now to ensure it works.

If your business is healthy and you don’t need the money now, testing your systems in advance will save you time in the future. You will have a better understanding of how long it takes to access cash from your provider if they have to reauthorise or approve a line of credit. If or when the time comes, you know you can access the money quickly.

5. Arrange additional sources of finance – If you have not got an inventory or debtor finance and you think you might need it, start talking to people now. Make sure you have adequate sources of finance going forward. It’s far easier to arrange finance before you really need it.

6. Explore your tax reliefs – Look to see if there are any reliefs available to your business that you have not claimed in the past, for example, Research and Development (R&D) tax credits. If you think that some of your expenditure might qualify or have a sneaking suspicion but never really bothered with it, now’s the time to take a more detailed look. If you have not exploited this opportunity in the past, you could claim R&D tax credits up to two years from the end of your accounting period. This could be a significant amount, so prepare your paperwork and submit to HMRC.

Work the tax cash flows. Is there anything you could do to access losses more quickly in this financial year? You could qualify for an early tax refund for any losses and put in an advanced claim to HMRC for a year that is part-way through. Get your information together and accelerate your claim for those losses rather than waiting for your year-end accounts when you submit your normal tax return.

At Westcotts, we would be pleased to discuss any of these areas with you. Please get in touch with Peter Lomax in our Weston-super-Mare office on 01934 620428 or by email.