Did you know that 60% of businesses fail in the first 5 years?
That’s not a nice thing to hear if you are thinking of starting up or have just hit a business birthday that’s under 5.
What can you do to ensure longevity for your business from the perspective of an accountant?
Cash is king
Poor cash flow and lack of business planning is one of the main causes for business failures.
Poor cash flow can be outside of the business owners’ control due to late payment of invoices or unexpected costs. However poor forecasting or a lack of any forecasting is a considerable reason for businesses failing. Not undertaking cashflow forecasts, management accounts or having any real time visibility on their finances can be catastrophic.
Kevin said “I have always maintained long term cashflow forecasts and before making any spending decision, ensure that different scenarios and financial shocks are explored to ensure that spend is viable. Recruitment of employees is important to forecast, along with expected income and expenditure, to ensure the business can sustain the role. We see many businesses who make spending decisions without any forecasting, projecting sales or forecasting expenditure, to then find there isn’t enough money to meet outgoings and getting into a mess. Further, poor tax planning or keeping reserves back for VAT or Corporation Tax can really push small businesses over the edge”.
Plan to succeed
First a business plan, you need to ensure you’ve worked ON the business and generated a well thought out plan. If you haven’t then the old adage of failing to plan means you plan to fail will be what you see as a business. Your plan provides guidance and accountability, you can easily make decisions against your plan’s objectives, KPIs or goals.
Secondly Business continuity is another important area that is commonly overlooked as well as appetite to risk. Having a business continuity plan in place really helps to plan for the unexpected and have fail safes in place to keep a business running in the event of staff absence, failure of IT equipment or even cyber attack. This has been especially important for businesses over the pandemic who weren’t prepared. It might seem a bit gloomy to think about all the things that could come and side swipe you but if you know how in theory you can react to keep your business running it’s more likely you will survive.
How you are performing can be checked against your management accounts. It’s important that you know your numbers on a weekly, monthly and quarterly basis. That way you’ll see if you’re going off track before it’s too late to do something about it.
Similarly look at where you are winning, does your new business reflect what’s in your business plan or are you finding you can easily win new clients or make product sales in a different area? That win/loss analysis again will help you focus your efforts. Because from an accountants point of view the more you win the better business stability you will have.
Work with an accountant
If you choose to just have ‘year end tax returns’ completed by your accountant you can’t expect to see much more support than that.
Whilst it might feel like an extra cost an SME doesn’t need working with your accountant on a monthly basis will help you understand what your numbers actually look like and what that means in practice.
No one else loves a cash flow forecast spreadsheet like us!
If you want to ensure your business success then we’ll happily share our formula with you just call us on 01332 981920