We start the year off with a few helpful hints to ensure your business is in the best shape for whatever 2022 throws at the commercial world. Omicron might turn out to have been over-egged, but there could also be more troublesome variants down the track. Supply chains may or may not return to normal and high inflation may turn out to be sticky, rather than only a transitory blip.

There are innumerable ways to sharpen up a business, depending on its sector, its size or the state the pandemic has left it in. Nevertheless, there are some basic strategies and fundamental questions that apply to most enterprises.

Business budget for 2022

This cannot be just a disembodied trading forecast; it must be a fully-integrated monthly budget and cash flow projection with opening and closing balance sheets. Otherwise, how can managers know what funding they will need and how they should react if events push them off course?

Reduce debt levels

Debt levels have soared in the pandemic. A third of all business borrowed under the various government-guaranteed loan schemes – a total of £76bn overall. Arrears of rent and taxes have built up as landlords and HMRC were forced to stand back from their usual collection and enforcement processes.

Smaller businesses in particular have badly bulging balance sheets, disfigured by huge liabilities and falling asset values, as well as trading losses. For example, our latest research into small hospitality companies revealed that their borrowings have doubled in just the last eight months alone and 27% of them are now ‘zombies’ with negative balance sheets.

What’s the plan, Stan? Have repayment terms been agreed with creditors nursing arrears of unpaid invoices and frustrated by their inability to collect them? Has a ‘Pay as you Grow’ arrangement been negotiated with the Bounce Back Loan lender or a ‘Time to Pay’ schedule with HMRC? What will the payments against these legacy debts do to cash flow?

Have you done a detailed profitability review?

Has a line-by-line analysis been done to show which customers, products or services give a decent profit margin and which are only marginal contributors? Unless the trade with a low margin customer is a sprat to catch a more profitable mackerel, why is scarce working capital being tied up servicing them? If a product earns the business little reward, why is it still being sold, unless it is in the development stage and will be a money spinner in the future?

Too many businesses suffer from the 80:20 syndrome, where 80% of their profits come from only 20% of their customers. What exactly is the point of wasting resources on the other 80% of the sales ledger? There has never been a better time to get tough with customers paying below a fair price for goods or services.

Dealing with bad payers

The UK has an endemic problem with late payment, especially by large companies oppressing small suppliers. The reality is that payment laggards are playing with funding facilities interest free and without permission. They are also the most likely to turn into a bad debt and generate the uphill task of replacing their slice of turnover. A £10,000 bad debt means finding an extra £100,000 sales if the profit margin is 10%, double that if the margin is only 5%. Why is this risk worth taking? Why not slim down the customer list and be a wiser, smaller business, rather than busy fools?

Staff retention

The latest employment statistics from the Office for National Statistics show job vacancies at the record level of over 1.2 million. Research by the Resolution Foundation has revealed that around 600,000 people have left the labour force since the start of the pandemic, while other estimates suggest that over 1 million workers have returned to the EU as a result of Brexit.

There are endemic labour shortages in some industries, prompting predatory hiring practices and higher pay rates. Having to recruit staff to replace leavers or facilitate expansion is beyond difficult, ruinously expensive and very likely to cause ructions as pay differentials are distorted within the business. This problem is not going away any time soon. There must be a plan to hang on to precious staff, which could include tactics like higher pay, reward schemes and decent internal communication at all levels in the work force to make staff feel a stronger bond with the business and its managers.

Marketing

Probably the most common error in any financial crisis is to slash or eliminate altogether the marketing spend, mainly because too few managers understand its importance to the current and future prospects of their business. If 2022 is going to be a good year, it simply will not happen without well-targeted and carefully thought through marketing. Of course, it has to be cost effective, but this is absolutely not a discretionary spending category.

These are just a few of the actions wise managers need to put in hand to guide them to a successful and profitable year ahead. It may well be a rocky road, so the fitter the business the more likely it will be to end 2022 as a Duracell Bunny winner.

If you are affected by any of these issues, Opus is here to help. We can be contacted for an initial consultation at info@opusllp.com.