Recovery isn’t as simple as it sounds

A Team meeting

The Covid-19 pandemic has been a problem for businesses of all sizes – this is a truly unprecedented situation across every industry. But as we come towards the period where companies will come out of the worst of the pandemic, it is important to start considering how your business is going to recover – and this might not be as simple as it sounds.

The world has not seen economic conditions like this in living memory. So, what businesses think they know about dealing with difficult times has to be questioned. Here we take a look at why recovering from the pandemic and the recession might not be quite as simple as it seems.

Businesses at risk after a recession

Take the issue of the recession that has been a natural challenge for British businesses. It is well known – and perhaps not surprising – that the UK dipped into a recession period during the pandemic. If we were to follow standard economic models, it is generally accepted that going into recession isn’t the most dangerous time for a business, it is coming out the other side that can cause issues.

This is because during a standard recession cash balances and balance sheet reserves are liable to shrink and then grow again. The growth requires fuel, and that typically has to be helped along with good availability of cash – and that can result in businesses running out of money to spend as they try to grow again.

But as with all aspects of the Covid-19 pandemic, we cannot necessarily apply traditional models and conventional thinking to this crisis.

The Covid-19 recession is different

Of course, the pandemic has created challenges for businesses and there can be no doubt that many have suffered hugely. However, we need to think about this concept differently. Unlike many recessions in the past, the government has put in place a huge range of measures to attempt to minimise the damage to businesses.

Schemes including the deferral of VAT and self-assessment liabilities, Bounce Back Loans, and Furlough have meant that some of the major costs to companies have been drastically reduced. This means that it is much more likely that, coming out of the recession, businesses will have the kind of cash available to fuel their regrowth.

This means that it will hopefully be easier for businesses to trade flexibly. In any case, however, it is important to understand where your business makes profit, as well as your cash flow, if you are to make the best of the rise out of recession. So, let’s take a look at some of the things that you need to do to make your recovery as smooth as possible:

Make projections

It is important that you think carefully about projections not just for your profitability, but also for cash flow. When you have a solid projection, you can adjust the numbers to help you understand whether you will have an issue when you go through unexpectedly high levels of growth.

If access to cash to manage growth is tight, then you will need to manage the issue carefully. Rather than thinking about how you can quickly return to the levels of trading you saw before the pandemic, it is a better idea to think more closely about the bottom line.

Analyse cash flow

Cash flow might not be something that you have ever had to worry about before – but when navigating your way out of a recession it is absolutely essential. You need to have funds available when you have major bills or invoices to pay; failing to have the kind of cash available, can seriously cause problems in the long term.

Re-think your strategy

You should recognise that the pandemic has changed things significantly – and this might have to affect your business strategy moving forward. It may be the case that the kinds of products and services you offer may need to be re-thought and updated. This can be a painful process, but it is important to ensure that the company is sustainable.

If you are interested in learning more about our bookkeeping and accounting services or any aspect of business finance and payments, get in contact with the experienced team at Wellden Turnbull today.