The last two years have been unusually challenging for UK businesses. Data from corporate rescue and recovery practice Begbies Traynor reveals that the various events in the last two years, which include economic recession, high inflation, decrease in travel, changes in consumer behaviour, and disruptions to global supply chains, have left 52% of businesses struggling to pay their bills over the next 12 months [1].
While these are unusual events, it’s vital that your business is sturdy enough to withstand potential macro and microeconomic challenges. The healthier your cash flow is today, the stronger your chances of making it through.
What does it mean to be financially resilient?
Financial resilience refers to the ability of a business to adapt, survive and thrive in face of unpredictable events that may be hard to factor in at the outset. Financially-resilient businesses find ways to grow and keep investing in the long term, even when their traditional income streams are compromised. They do this by regularly reviewing their accounts, identifying and addressing any drains in resources, and finding new ways to grow their margins.
Checklist: Build your financial resilience
Planning ahead is the cornerstone of financial resilience, but how do you plan for eventualities you can’t foresee? Our financial resilience checklist provides four actionable steps to bolster your financial standing to be able to withstand most potential shocks.
1. Understand and manage your cash flow
Financially-resilient businesses are on top of their accounts, keeping an eagle eye on chasing late payments, automating simple accounting processes and finding efficiencies to cut operational costs.
A simple cash flow analysis will help you identify where the bottlenecks are by comparing the total of your unpaid purchases against the total sales due at the end of each month. If the total unpaid purchases are greater than the total sales due, that will show you where you may need to cut costs, where you’ll need to ramp up your sales efforts, or which of your customers are slow payers.
With an American Express® Business Card, you get up to 54 days to clear your Card balance, so you can keep your money in the account for longer and get more flexibility in your cash flow.¹
2. Identify new income opportunities
Financially-resilient companies find ways to keep costs minimal while also looking into new ways of making money. For specialist tea and social impact business, NEMI Teas, a pivot was the only way to stay in the black. The company’s mission is to get refugees into jobs by upskilling them through local work experience at external events and the company’s own warehouses. “Covid wiped out 95% of our business overnight,” says founder Pranav Chopra. “We couldn’t employ our refugees on a full-time basis, so we had to pivot. We placed them in roles with our cafe partners and still paid them.”
As part of its strategy to build new income opportunities, NEMI set up a cafe collaboration with The Well Bean Co to provide three-month work placements for its refugee hires. These employees were trained by professional baristas and experts from the Hotel School in coffee-making and hospitality. Chopra also started growing NEMI Teas’ online presence to push direct-to-consumer retail.
3. Work out what to invest in and how you’ll pay for it
It’s important to keep your budget as a living document so you can use it to make business decisions that allow you to remain agile. It can also help you identify potential funding gaps and ways to fill them ahead of time. According to research from UK Finance, many SMEs believe they won’t be able to access finance, but 88% of businesses that apply for growth finance are successful [2].
4. Invest in your business during slower periods
Lastly, you can use periods of uncertainty as a business catalyst by investing in capital, employees, or new marketing strategies.
As an example, the construction sector has had a particularly challenging 18 months: the level of output in September 2021 was £141 million below the level of February 2020 [3].
Despite this, TIMCO, a Cheshire-based supplier of construction products, reported an increase in turnover of 14% - to £49.7m - in 2020. The company is predicting a £60 million turnover for 2021. Managing Director Simon Midwood’s strategy shifted TIMCO’s focus during the ‘downtime’ of the first lockdown to rebuild the company website. As a result, online sales increased from 20% to over 50% of all sales within the last 12 months. The company also undertook an extensive rebranding of all 7,500 TIMCO brand products, and added next-day delivery and direct-to-site deliveries to help customers sell more products.
The business wasn’t without struggle, however. In March 2021, the Suez canal blockage held up an estimated $9.6 billion worth of goods each day [4]. Containers became fewer in supply, leading to a marked price increase. “We have always kept six months’ worth of stock to prevent any delivery delays, but even with that forward planning, we have let customers down,” says Midwood. “That has upset us the most.”
To cope with these supply chain disruptions, Midwood hired more sales staff to manage customer expectations and keep the lines of communication open. “The lovely thing about being an independent company is that I can do what’s right for our employees and customers," he says. "Sometimes the ROI is not clear in short-term forecasting, but the reality is it may be best for the business in the long term.”
Make your business expenses work harder with Membership Rewards® points. The American Express Business® Gold Card enables you to earn one Membership Rewards point for £1 spent on the Card, which can be redeemed as statement credit – allowing you to free up cash to reinvest in your business².
- The maximum payment period on purchases is 54 calendar days and is obtained only if you spend on the first day of the new statement period and repay the balance in full on the due date.
- Membership Rewards points are earned on every full £1 spent and charged, per transaction. Terms and conditions apply.
- If you'd prefer a Card with no annual fee, rewards or other features, an alternative option is available – the Business Basic Card.
Sources
[1] Begbies Traynor, Toxic debt held by 52% of all businesses
[2] SME Finance Monitor Chart Pack Q2 2021
[3] ONS, Construction Output in Great Britain
[4] BBC News, Suez blockage is holding up $9.6bn of goods a day
