Determine your financial position and financial health
Before you can begin planning for business recovery, you first need to determine your financial position. To do this, make sure your financial statements are up to date.
This is important as:
• you may need to pay substantial outgoings before you can restart. You will need to assess how to fund these outgoings and whether you can afford it
• there may be a significant period before you can restart trading or trading remains limited and therefore you may have to rely on existing cash reserves until that time
• it will be a key factor in determining which direction you can take your business in the future.
Once you have prepared your financials, you can begin analysing the financial health of your business.
We strongly suggest that you undertake a ‘ratio analysis’ to compare the information in your financial statements against other similar businesses to get a more complete understanding of the financial health of your business before you begin your recovery efforts. Such an understanding will influence what actions you can take and should not take in the recovery.
Below are a list of examples of the questions you should be asking yourself;
Do you have adequate cash (such as cash at bank, recoverable money owing from customers and stock) to cover debts due and payable in the next few months?
Is your stock easily converted to cash, if needed, to pay debts?
Does your business have adequate assets to cover all commitments including long term debts?
Do you know what your gross margin is?
Do you know what your net margin is?
Do you know what your margins compare to benchmarks in your industry?
Do you know what your break-even amount or volume is?
Do you customers pay on time?
Are your suppliers paid on time?
Do you know how effective the assets of the business are in generating profits?
Do you know what the return on investment for your business is?