In these challenging times it is important that business leaders understand how many months they can survive with the cash/debt facilities they have. Many businesses are suffering very low sales, particularly those that are travel, leisure or events based, and this can have surprisingly short-term implications for business survival.
We would suggest thinking about this is in terms of “cash burn”. How many months overheads can you cover with the cash or debt facilities you have in place? If you are still making some sales, how many months of net losses or low net profits can you survive?
The best way to anticipate these problems (if they are not immediately apparent) is to produce a weekly or monthly cash flow forecast setting out the receipts you are due/plan for and the costs you know you will incur. This helps you understand when the cash will run out and crucially gives you time to take remedial action, such as talking to creditors about payments plans, talking to HMRC about “time to pay arrangements”, considering your staffing levels or, perhaps, more positively, investing time, money and energy in a sales push which could even be in a new direction that is now apparent in this changing economy.