Protecting your business against the cost of living crisis

The cost-of-living crisis continues to dominate the news with UK inflation pushed to its highest rate in 40 years.  Increases in the cost of energy and materials are putting businesses and their supply chains under pressure, and at the same time, consumer confidence has also dropped, reaching an all-time low since records began in 1974 (as at June 2022).

The combination of these various factors will be challenging for many businesses, in particular for those who were most affected as a result of Covid-19.  Monitoring the impact (or potential impact) of these factors on your company’s financial position will be key to controlling your net profit, or loss.

If your business is already experiencing financial strain, you should seek professional advice from a Licenced Insolvency Practitioner.  If you simply wish to assess the financial health of your business then consider the following tips.

What can you do to protect your company’s finances?

• Review current expenditure

Review and minimise unnecessary expenditure.  Once you have a clear understanding of the position, consider whether there is anything which you can reduce, or get rid of entirely.  Are you still paying for office-related costs which are no longer necessary – if so, put a stop to them.  There are some costs which you simply cannot avoid, but making small (reasonable) savings wherever possible will add up.

• Review your products and services

Not all products or services are equal in terms of net profit.  Are you offering a product or service which costs a lot to deliver, for little financial reward?  If so, consider why this is and either streamline your own processes, or consider passing this work on to another trusted supplier for a commission, or suspend the offering altogether. 

• Deal with overdue invoices

Unpaid invoices have a negative effect on any business.  If payments regularly exceed the agreed terms, consider charging interest for any period over and above that.  If a long-standing customer is struggling, it might be appropriate to take a more lenient approach but be clear on your position and stick to it.

• Reviewing funding

There are many ways to get business funding, ranging from start-up loans, traditional bank loans, factoring, or peer-to-peer lending.  Always be mindful that additional borrowing is not always the answer, and that this may require commitment from you in the form of a personal guarantee.

• Plan for the future

Revisit your budgets and financial projections and ensure they are realistic.  Consider what you reasonably expect to make in terms of sales and allocate budgets against all operating costs (such as your direct costs, insurance, marketing, payroll, premises and professional costs).  Periodically review these, and if actual figures are far from your original projections, consider why, and act upon this information. 

Following these tips should enable you to identify key concerns and take professional advice where necessary. 

What should I do if my business is struggling?

If your company is struggling the most important thing to do is seek advice.  By speaking to a Licenced Insolvency Practitioner, you can work together to establish whether the problem is temporary, or whether more formal action is required.  If the problems are too significant and the company cannot survive, you will need to think about whether the company should be formally closed.

Voluntary liquidation is a formal insolvency procedure formally known as Creditors Voluntary Liquidation (CVL).  As part of the CVL process, all assets belonging to the company will be identified and sold for the benefit of the liquidation.  You can read more about company closure, here.

Help from a Licenced Insolvency Practitioner

Keywood Group are a firm of Licenced Insolvency Practitioners with offices in Birmingham and London.  Our team has extensive experience in advising businesses on their options and dealing with company closure.  Our experienced team will work with you to assess the options available and guide you through the process.   If you want further information, please contact us for a no obligation chat.