I can’t say I really remember talking to my parents about money when I was young(er), but I do strongly recall one thing….
…A lecture from my father, after I got my first job, telling me to put away 20% of my salary each month into a savings account, in case of emergencies.
“You need to have money put aside for a rainy day fund,” he told me. “Make it into a habit – you’ll never regret it.”
I daresay most people of my generation got a similar lecture from their parents.
And many of us listened, too!
We were lucky enough to start working when it was relatively easy to get on the housing ladder, so it was probably easier than it is today to put some cash away.
And I’m sure that over the years, those little nest eggs were vital to help people survive job losses, unexpected bills and other financial calamities.
Not only did they help cover emergency expenses, but in tough times they gave us some breathing space to be able to get back on our feet, without acting rashly or resorting to desperate measures.
Unfortunately, our parents let us down in one way….
…They forgot to mention that if you become a business owner, you need to create a ‘rainy day fund’ for your business as well!
Here at the Outsourced Finance Department we’re always amazed to see how many people who are financially prudent in their private lives run businesses with little-to-no cash reserves.
And we’ve seen the result during this Coronavirus crisis.
Too many businesses – even well established ones – were thrown into complete disarray the moment their supply chains were disrupted or some customers disappeared.
With very little spare cash, their very survival was at stake within weeks and even days.
In many cases, the financial management problems they faced were actually solvable. But with no money to buy them any time, the business owners didn’t get the chance to find sensible solutions. They were forced into panic mode.
Now, if that didn’t happen to you, allow yourself a moment to feel a little smug….
…And then ask yourself whether you have the cash reserves to get your company safely through a second crisis.
Because the experts warn that we’re most likely going to face a second “peak” over the next 12 months. The financial pressure facing the economy is not going to go away – and may very well get a lot worse.
The experts may be wrong on this. But can you really afford to take that risk?
If there’s one thing we’ve learned during this first phase of the Coronavirus crisis, it’s that the worst case scenario does sometimes happen…
So how can you create financial resilience for your business, and make sure that it can withstand ongoing disruption?
Last week, I mentioned the first step – to ensure you have solid financial systems and processes in place, so your finances are not dependent on any one individual. (Just imagine what would happen if they were suddenly unavailable?)
The second step is to ensure you have adequate financial reserves at all times – that’s your business’s ‘rainy day fund’.
If you don’t already have one, you’ll have to work hard to create one in the current economic climate.
This may “simply” involve setting aside money from your profits each month.
Well, I say “simply” – but of course, you have to be profitable to make this possible!
If that’s not the case, then looking again at the way your business is run to help you become profitable must be a top priority. (After all, what’s the point of your business if there’s no profit!?)
There are also other ways to build cash reserves. Securing an overdraft facility at your bank is one – although this comes with some risks, because the bank can immediately recall the money you owe.
And there may be other lenders who can make a credit line available to you.
You need to make sure that credit line is greater than you need at the moment, in case things don’t go well. Having “just enough to get by” is one of the reasons businesses struggle – you have to think bigger than that and give yourself plenty of room to manoeuvre.
Persuading the lender that this is necessary is, of course, the challenge.
But at least you will have begun thinking through this critical issue, and searching for solutions.
Hopefully, you will never have to dip into those cash reserves. But having them available not only gives you peace-of-mind, but buys you vital time to save your business if the worst does happen, and we face a second Coronavirus shut-down.
Many businesses won’t survive that scenario – even some which were doing well before Coronavirus hit. After all, these are extraordinary circumstances.
Can yours survive Round 2?
If you’re worried that the answer is “no”, get in touch today.
We help businesses turning over more than £1 million implement outstanding financial management.
Giving your company the financial resilience necessary to withstand serious threats – like another Coronavirus shut-down – is a vital part of our work.
Just email me today to talk about how we can help your business. I’ll get right back to you.
