If you have managed to retain profits in your business this fat-on-the-bone will help to see you through loss making periods.
The challenges UK business presently face – and that pose a threat to solvency – are gathering pace. They include:
- Potential disruption if COVID and flu return with a vengeance this winter.
- Supply line issues as the war in Ukraine and Brexit continue to disrupt the delivery of goods to UK manufacturers.
- The global shortage of computer chips and rare earth metals.
- Interest and exchange rate challenges.
Quite a mixed bunch.
How long your reserves last will depend on the ability of your business to increase or maintain profits. Losses will inevitably eat away at reserves.
Accordingly, planning is absolutely vital.
You need to figure what your short-term prospects for trading are likely to be and then quantify the minimum level of costs that you will need to carry in order to meet:
- Existing fixed commitments, rent for example, and
- Other variable costs to deliver any future trade.
If these calculations reveal that you will be trading at a loss for an extended period, the only way your business can survive is if:
- Your retained profits and personal capital introduced cover these losses, and or
- If reserves are exhausted, are you are prepared to borrow to fund the excess losses?
If you need help with the number crunching, please call.