2020: A year in review and a chance to look forward to 2021

Between Covid-19, lockdowns and Brexit planning, 2020 was a year few predicted, and unlike most businesses have ever seen.

With 2021 fast approaching, and regional lock downs still part of the economic landscape, businesses across Sussex continue to trade under extremely challenging conditions.

However, there are actions you can take now to ensure you start 2021 on a strong footing.

Spending Review 2020: implications for businesses

In his Spending Review on 25 November Chancellor Rishi Sunak said the “economic emergency” caused by Covid-19 has only just begun, as he warned the virus would mean lasting damage to growth and jobs.

Current UK economic climate

Official forecasts now predict the biggest economic decline in 300 years.

The UK economy is expected to shrink by 11.3% this year and not return to its pre-Covid size until the end of 2022. Government borrowing will rise to its highest outside of wartime to deal with the economic impact.

The Office for Budgetary Responsibility (OBR) expects the number of unemployed people to increase up to 2.6 million by the middle of next year. This means the unemployment rate will hit 7.5%, its highest level since the financial crisis in 2009.

Furthermore, the Office for National Statistics recently revealed that nearly half (48%) of trading businesses have seen their turnover fall to below what is normally expected for this time of year.

What does this mean for businesses?

Clearly the situation is unprecedented in peace time. The cost of Covid-19 is huge and the Government will need to find more money from spending cuts and taxes just to balance revenues on a day to day basis. Businesses could therefore expect to see tax rises announced in the March 2021 budget.

There is already speculation that the government could raise money from changes to Capital Gains Tax, pensions relief or self-employment taxes. However, this will not be sufficient to cover the Covid-19 costs so there may also be some corporation tax, income tax, VAT or national insurance increases.

The big decision for the government will be to decide when to stop the support to the recovering economy and when to start strengthening public finances by tax rises. The extreme uncertainty underlines how difficult that decision could be.

Planning ahead

Businesses should strengthen their cash flow management now ahead of the end of supports and tax changes.

Take some time to plan ahead to look at maximising revenue and minimising or streamlining operating costs. We can provide you with templates and forecasts to do this or we can help you prepare accurate forecasts based on a number of scenarios and do a “what if” exercise on your business.

Cash flow checklist for business resilience

So, if you are running a business and turnover is down, what should you be doing to ensure resilience?

Government support

Clearly, we are living in tough times and it makes sense to take advantage of Government supports. These include the new Job Support Schemes, as well as deferring tax and using Bounce Back Loans.

There are also grants available to help firms with Brexit changes for import and export administration.

Cash flow checklist

Business planning for the unknown can be very difficult but there are some practical steps you can take to minimise potential disruption to your business.

1. Review your budgets and set realistic and achievable targets for the remainder of 2020 and into the early part of 2021.

2. Get your employees involved in a discussion of likely trading conditions due to Brexit and get their input on reducing costs and maintaining revenues.

3. Use ‘bottom up’ budgeting where everyone in the business gives input on areas over which they have control – target a 10% cost saving.

4. Review and flow chart the main processes in your business (sales processing, order fulfilment, shipping, etc.) and challenge the need for each step.

5. Encourage team members to suggest ways to streamline and simplify processes (sit down and brainstorm about efficiencies and cost reduction).

6. Put extra effort into making sure your relationships with your customers are solid.

7. Review your list of products and services and eliminate those that are unprofitable or not core products/services.

8. Review the efficiency of business processes and consider alternatives such as outsourcing certain activities locally or overseas.

9. Agree extended payment terms with all suppliers in advance.

10. Pull everyone together and explain the business strategy and get their buy-in.

Tips to get your business booming in 2021

Despite the challenging economic landscape, there still are opportunities for growth and plenty of success stories out there. So how do you capitalise on these and become one of the ‘lucky’ businesses thriving through adversity?

Below, we provide our top tips to hit the ground running for 2021:

1.Stay close to your numbers

Without a crystal-clear picture of your business’ financial health, you will not be able to create an effective strategy that will help you weather business challenges. By making the effort to understand your financials, including your revenue, expenses, profits, and cashflow numbers, you will be able to plan accordingly.

Up to date management information will also assist in the preparation of forecasts. Regular forecasting will be increasingly important to monitor cash flows and identify any pinch points.

2. Improve Your Cashflow

Cashflow is the lifeblood of your business, and ideally, you should be bringing in more income than the amount you are spending to sustain your business. However, before you can improve your cashflow, you must first ensure that you have accurate financial records and an effective accounting system in place.

Once you have these sorted out, use our checklist above to take control of your cash position.

3. Adapt, don’t recover

When business gets disrupted, most businesses focus nearly all their attention on how to recover their old services. By looking forward, you’ll see that the business environment has moved.

It’s not about hoping that old services become popular again; it’s about adapting old services to make them better, more relevant, and more valuable to consumers today.

4. Stick to strategy

When the only constant is change itself, it can be easy to find your business further and further away from your initial objectives and goals. Detailed plans and forecasts are near enough impossible at the moment so strip your strategy back. Focus on your vision of where you want to be and then build a one-page-plan of how you are going to get there.

The plan should be a guide, not a rule book and stick to what you are good at. Each adaptation should be to move you back in line with your vision. You should adapt your services and operations, not your strategy.

5. External solutions for internal problems

Keep track of what’s going on around you, what looks like it works and what clearly doesn’t. Competitor analysis and product surround tools can be great for identifying opportunities to adapt, but in its simplest form just keep track of what your competitors are doing and don’t be left behind.

How we can support you in 2021 and beyond

MHA Carpenter Box can provide the guidance to help review your business, provide advice on accessing support and assist with identifying options for cash flow needs.

For more information, please visit www.carpenterbox.com or call 01903 234094.