If the government is successful in achieving a boost to economic growth, how might this apparent success be a possible threat to your business?

During recent months, many businesses have been faced with paying fixed costs – rent for example – even if turnover has reduced or been eliminated due to various disruptive influences. Recent government schemes to assist with rising energy costs are welcomed, but many businesses will be struggling to maintain profitability.

This will reduce cash reserves, and, in some cases, firms will be obliged to lend money to fund losses if they want their businesses to survive.

If attempts to reflate our economy – witness recent tax cuts and energy support schemes, when sales pick-up, it may be some time before these sales actually reach our bank accounts, especially, if we are tempted to offer extended credit in order to win sales.

Consequently, the extra sales may not generate cash inflows at a fast enough rate to meet current costs, and as most businesses will be entering this period with depleted or exhausted reserves, unpaid creditors including your bank may enforce a close-down in order to part recover their unpaid bills and loans.

This is overtrading and the way to avoid it is to adopt rigorous cash-flow management. This is a process that you can start now, before any upturn. If you need help designing the necessary spreadsheets or other systems, please call, we can help.

Source: New feed