On Sunday 10 May, we are all hoping that Boris Johnson will set out his roadmap and tell us he is starting to relax the lockdown provisions. At the moment we can only speculate how long this will take but the only certainty is the ‘new normal’ will be very different to the ‘old normal’.

During the lockdown certain sectors have thrived. The big tech companies (Apple, Microsoft, Amazon, Facebook and Google) are benefitting from people spending more time and money online – proving the digital age really is here.

Local shops have benefited from people staying close to home but shopping centres remain empty with landlords left speculating where the next rent cheque will come from. Anecdotal evidence suggests spending from pubs has been transferred to the local off licence, all paid for on a debit card with no cash in sight. But once the pubs reopen will people want to visit them? Will social distancing become a way of life and affect everything we do?

In the future, our grandchildren will be enthralled by stories of weekend trips to Prague and will be astonished that Michael O’Leary could run an airline selling tickets for less than £500 one way.

The new normal

The transition from lockdown to the ‘new normal’ poses a significant risk to business. Returning to profitable trading and cash management will be critical if you are to survive but this will be very difficult in an economy operating below previous levels.

The government have provided a number of measures to help business (see our COVID-19 Hub) and banks have been sympathetic to requests for loan repayment holidays.

I know of one business in the leisure sector which has taken advantage of the furlough scheme, VAT and PAYE deferral and rates relief, combined it with a loan repayment holiday with the bank, and now has virtually no money going out of the bank account.

This is all well and good at the moment, but what happens when the business is allowed to reopen and trade returns but is nowhere near pre-lockdown levels? You suddenly have to pay the staff and next March you have to pay the VAT. No wonder Insolvency Firms are preparing for a busy Autumn.

You may decide to develop new products or services. In a recent investor call, Mark Zuckerberg admitted things would get worse before they got better but “in times of economic downturn, the right thing to do is to keep investing in building the future”. Not many businesses will have the cash to do this, but you have to manage your affairs to give yourself the best possible chance.

Cash forecasts

Cash forecasts are a key business tool and if you do not already prepare them, you really must consider them now.

Ideally you should be looking at an annual forecast (which will cover the VAT due next year etc) and a 13 week rolling forecast to cover your short term requirements.

Annual forecast

The benefit of preparing the annual forecast is it makes you think about your business model and the interaction of income and expenditure. You can introduce ‘what if’ scenarios to see what happens when you introduce new products or services and additional staff members.

The forecast will identify pinch points where you need external funding and you can put this in place before you need it, not when you are just about to go overdrawn.

The key is to constantly monitor actual performance against forecast and make changes to your plan as required.

13 week rolling forecast

The 13 week rolling forecast is also important and is used to monitor your short term cash requirements, matching weekly payments and receipts. You will be able to plan when you are going to pay your suppliers and keep them fully informed.

Preparing your roadmap

To do all of this will entail up to date accounting information. Providers of cloud accounting software often talk about real time information but unless you have someone working full time on your accounts, this is never going to happen. A more realistic target is accounts reconciled weekly which should provide you with the information you require.

Most cloud packages will help monitor your profit and loss and balance sheet but on their own do not have a cash forecasting function. To help with this you will have to connect to one of several apps such as Fluidly, Float or Spotlight Reporting.

These apps take your data from your online package and in some cases use AI to formulate your cash forecast. As a result you have to be careful with the output but it can, if interpreted correctly, provide you with the information you need to manage your business through the next twelve months and beyond.

Boris is setting out his roadmap on Sunday, where will yours take you?

For more information on managing your accounts and preparing forecasts, contact Christopher Wrighton or your usual relationship practitioner.

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