Whatever you make of the ‘mini budget’ it’s clear that the UK is in the midst of an economic downturn.
This article explores some of the opportunities and steps businesses might take to either weather the storm or even use the time to scale.
This may seem obvious but now is the time to undertake a detailed analysis of your business. What is working; what isn’t working where are the strengths ; what areas can you scale back or focus more on and where should finances be redeployed.
As a director it is fundamental that you keep on top of the financial side of the business. If your business is in difficulties, there may even be risk of wrongful trading. It’s important you take advice early if it looks like you cannot meet your financial obligations. In many circumstances deals can be struck with creditors , to reduce cash flow issues and buy some breathing room.
Dissect you terms and any credit arrangements you have with your customers and suppliers. Are your terms still working for you? Such as payment terms , cancellation and costs ? Is everything properly documented? Do you have properly documented payment terms that mirrors the invoices, web terms and practical billing times? Do you have the right to charge interest?
Don’t let cash kill you
Cash is king. This remains fundamental for most businesses. Keep a firm eye on your creditors and escalate enforcement action where payments have not been made. Procrastination is terminal very often you need to be proactive. In the first instance we would advocate internal enforcement action by your accounts team, perhaps putting a stop on the supply of goods or service or imposing contractual interest . Then where necessary referring the matter to solicitors to try and recover sums due to you. You also though we do understand need to keep in mind any commercial relationship but this needs to be balanced against your right to be paid for what you have done.
Prevention is better than a cure
It is important to consider what steps you can take now to protect your business for potentially harder times to come. What areas may need additional resources.
Have in place a properly considered business disruption plan, the cost of living crisis and financial turmoil is looking to cause significant risk to businesses. What contingencies can you try and put in place now to try and counter act this, fix rates, agree discounts and payments plans , forecast monies and income in and out. Whilst this is not usually something factored into business ‘disruption – planning the scale of the impact’ is likely to make this something that should be considered. How will anticipated industrial action affect you? What effect may the cost of living crisis have on your staff? Do you move money internationally? Do you import or export – how may the recent devaluation of the pound impact your business?
During times of financial difficulties we often see more disputes as often tempers are fraught, goods and services are more closely scrutinised and costs are at the forefront of most peoples minds. You should keep this in mind when dealing with any third parties. Make sure to check your insurance policies are up to date and cover you for liabilities, it may also be sensible to explore legal expenses insurance which covers legal costs of litigation so you are fully prepared if action is taken against your business or if you need to take action against a third party. This means you can hire a solicitor to help fight your corner with some comfort the costs are being met.
Make sure, as above all your contracts are up to date. Does your force majeure clause work for you, how will anticipated industrial action impact on your business, is it covered in your contract if, say you cannot meet demand because of postal strikes?
It is also important to check any arrangements you may have with investors and shareholders, ensure you are following any agreed processes and keep them properly updated.
If you have a lease ensure you fully understand the terms. Typically if you fail to pay your landlord rent then the lease may be forfeited meaning you will loose the lease and it is costly and lengthy to try and get this back.
The beating heart of the business
Your employees can be everything for the sustainability of your business, but can you afford the ongoing expenses? You may be worried about now you may be able to afford to keep your staff now or in the future and undoubtedly we unfortunately expect to see a rise in redundancies.
It is fundamentally important that if you find yourself in the position to need to make anyone redundant that you follow the correct process and any process is fair. Dealing with staff is complex and there are many potential legal pitfalls. It is important to have proper legal advice to help guide you through this process and protect you if something goes wrong.
On the other side of the coin you may find that many staff are concerned during this time and you may find it difficult to retain staff that you want to keep and to recruit talent. Whilst you may not be able to increase salaries there are other benefits that can be explored to try and boost morale. This doesn’t have to be costly. Culture is very important for any team and rebuilding this after redundancies or during times of financial uncertainties can be difficult. Options of shares in the future ; extra leave provisions or bonus structures
Now is time to check that you have in place suitable policies and your staff contracts are all up to date. If you are looking to change any terms then it is important that you take specialist legal advice as this can be done but this has to be done correctly.
Don’t stop innovating
Many successful businesses were formed during times of recession, in the UK examples include Poundland, Wilko, JD Sport and internationally Microsoft, Uber and Slack even ourselves A City Law Firm. Periods of national and international financial downturn are not necessarily always devastating for all businesses. You may have to innovate, disrupt and pivot but there can be opportunities during this time. You may be more attractive to international investors. Lower costs or smaller more personal can often attract customers. In addition the ‘mini budget’ looked to increase SEIS tax relief to £250,000 to encourage investment into high growth start up companies.
It is important for you to take time to review your business and what steps can be taken to stabilise your business and even look to grow during this time.