Covid-19: Assistance for SME Business Directors
The pandemic has made rapid changes in the economic structure of businesses worldwide. This guide has been written with the objective of assisting the directors and owners of small businesses.
Why do the future predictions matter for a business when preparing the previous year’s accounts?
These accounts are records of the transactions that have taken place over the year and show what the business owes and owns by the year’s end. Most items within the accounts are classified and measured while assuming that the company will be continuing trade in the future as well. An example of this is how the equipment will be measured at cost and will be categorized as a fixed asset, meaning the equipment should generate enough income as suggested in the balance sheet. So if a company stops trading, the measurement of the equipment will have to be changed.
Is there a need for an official assessment of the business’ ability to keep trading?
The director of a company is responsible for making the accounts that will carry out assessments. These assessments will deduce whether the company is doing well or not. The assessment is supposed to assess all information related to the company’s future plans for the next twelve months. As the pandemic has made things uncertain, it is better to produce evidence that can support the conclusions you have come up with.
How can you do this?
As the future is unpredictable, assumptions need to be made. It is crucial to have enough money on hand. A good way to start is by preparing the cash flow forecast for the year at the very beginning of the company’s annual start. This step will help you identify any problems or shortcomings beforehand, allowing you to prevent them through different means.
How to identify issues due to pandemic when there are so many unknown factors?
Due to the pandemic’s unique situation, you should adjust the probable outflows and inflows of the business. This is to be done while considering the issues that might take place or are taking place in your sector, as an issue with the supply chain or the lockdowns affecting your business.
Things to be aware of
- Staff Costs – any changes in the number of staff members or additional costs like bonuses, commission, and pensions.
- Lack of funds – at any point, you might feel that there are insufficient funds and then, you will need to cut costs. The government has introduced many support schemes that you can avail of but at the same time, cashflow management is essential now.
- Bank covenants – the terms linked with the company’s bank loans matter a lot. These need to be negotiated in order to avoid any legal issues.
- Business strategy (medium and short term) – an analysis of the company’s weaknesses, strengths, and opportunities can help your company a lot in preventing or taking measures for a more stable future.
- Loan repayments – in case you increase the number of borrowing, you might have to pay interest and other additional capital.
- Outsourcing – outsource every possible business process to save massive fixed costs such as overtime, bonuses, annual leave pay, air tickets, etc. Important business processes like Accounting and bookkeeping services, CFO services, etc. are the most common business process which businesses are outsourcing these days.