Top financial tips to survive in tough times

8 November 2011

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Economic doom and gloom is never far from the headlines at the moment, knocking both consumer and business confidence, but there are steps you can take now to protect your business from the possibility of a downturn in the future. Discover the key areas your business needs to address in order to thrive.

Have a business plan

If you haven't already, you should prepare – or update – your business plan. This should detail your business's goals and challenges, and set out how you will achieve and overcome them. This will help you to know where your business is at the moment and stay in control of its future.

Know your financial situation

It is vitally important that you know where you stand financially, do not bury your head in the sand. As part of your business plan, you should have prepared a budget and cash flow forecast, which should be updated on a monthly basis to give you early warning of potential problems and help you to see how you would cope if, for example, your business suffered a 10% decrease in sales.

You should also keep an eye on how the rest of the world judges your financial affairs by checking your credit rating. Make sure your own rating is accurate and address any inconsistencies; these may stop you from accessing the credit you deserve.

Know your customers

What would happen to your business if one of your customers went bust? Use a business monitoring and credit reporting service to keep an eye on your customers' financial situations and always review this information before extending credit. You can also obtain credit insurance to protect your business from the possibility of customers becoming insolvent.

For this reason, it is also important that you spread the risk to your business by not relying on only a small handful of customers.

Keep cash flowing

If the last recession taught us anything it is that lack of profits isn't what causes businesses to fail, it is lack of cash to pay wages, bills, rents and suppliers.

To ensure a healthy cash flow, you should make sure that your credit control procedures are robust. Set clear credit limits for all customers, bill promptly and enforce your debt recovery policies. Intermediate and Advanced members of the Forum can find practical advice and information in our Credit Control Guide.

Chase debts

If the worst does happen and a customer goes bust, the money they owe you is rightfully yours. Make a claim to the appointed insolvency practitioner as soon as possible to maximise your chances of getting your money back.

Negotiate with creditors

If you're struggling to repay your debts, don't wait until the deadline for repayment to pass to contact your creditors and do not ignore their letters and calls. By talking to them before things go too far, you may be able to find a compromise on payment terms. Any creditor or group of creditors owed more than £750 can ask a court to wind up a limited company, so the results of ignoring demands could be devastating.

Be prepared to adapt

You should have a good idea of what is going on in your market and how sales are being affected by the economy. If sales are suffering, look for new sales channels and markets to expand your customer base. You can read more ideas for adapting your business in a downturn here.

Get access to the right finance

Accessing the right funding from traditional sources such as banks has always been difficult for small businesses and even more so in the last few years. According to recent figures from the Office for National Statistics, only 65% of small and medium-sized businesses were successful in their attempts to get loans in 2010, down from 90% in 2007.

Whilst the bank should be your first port of call, and initiatives like the Enterprise Finance Guarantee may help your case, it is worth exploring all alternative funding options.

Reduce your overheads

You should review your overheads regularly, but it becomes even more important to get the best deals when times are tough. Find out how the Forum can help you to save money on essential costs including telecoms, utilities, merchant services and fuel through our Purchasing Director solution.

Get the right advice

It's important to take financial and legal advice as soon as you start to see any warning signs so that you can weigh up your various options and take early action to prevent things getting worse. Members of the Forum – call the helpline on 0845 130 1722 if you have any concerns or to find out how we can help your business to thrive.