Immediately after the Autumn statement, the Office for Budget Responsibility (OBR) released its November 2022 economic and fiscal outlook. Forecasts predict the economy will shrink by 1.4% next year.
Their summary makes grim reading. They state that inflation is set to peak at a 40-year high of 11% in the current quarter, and the peak would have been a further 2½ percentage points higher without the energy price guarantee (EPG), limiting a typical household’s annualised energy bill to £2,500 this winter and £3,000 next winter.
Rising prices will erode real wages and reduce living standards by 7% in total over the two financial years to April 24 (wiping out the previous eight years’ growth), despite over £100billion of additional government support. The squeeze on real incomes, rise in interest rates, and fall in house prices all weigh on consumption and investment, tipping the economy into a recession lasting just over a year from the third quarter of 2022, with a peak-to-trough fall in GDP of 2%. Unemployment rises by 505,000 from 3.5% to peak at 4.9% in the third quarter of 2024.
Some businesses are more likely to be affected by the downturn and get into cash flow problems, while others will be more resilient. If you are a business owner, you might be wondering which category your business falls into. No matter how inventive or simple your business model is, you can still have problems with cash flow. Here are our thoughts on managing the flow of cash in your business:
- The first stage of understanding and predicting how funds flow is to perform a health check on your accounts. Look at your latest profit and loss statement and check that your income is sufficient to cover your expenses. If your income is falling behind your expenses and cash flow is slowing down, you might need to act. Prepare a funds flow statement so you know where the money goes.
- Next, create a yearly budget and look at where cash could become tight and months where you can save to cover the quieter times. Look at those quieter months and think about flexible work scheduling, new products or services or other activities to tide you over.
- Finally, make sure to collect your money quickly from those who owe you. Reward customer loyalty by offering early bird discounts and set credit limits and payment terms to ensure customers follow the rules. If you take on new customers, make credit checks. Penalise late payers and request upfront deposits or payments.
Talk to us about preparing a funds flow statement and annual budget so that you can work on your business for maximum success!