Managing finances in an economic downturn

There can be little doubt that we are in a period of economic instability.  When changes like this happen all businesses and individuals should be reviewing their finances to ensure that they survive and, indeed, prosper in difficult economic times.

Individuals

Now is the right time to review your cash flow.   If you are concerned about your future income stream, take action to reduce unnecessary expenditure and reduce your debt.  It may be an appropriate time to consolidate your borrowings over a longer term to reduce monthly payments.

For individuals with savings, now is a good time to make your money work harder. Banks and Building Societies are offering some excellent rates to attract money to bolster their coffers.  Equity investors should take decisions based on professional advice in an uncertain market-place.  However, there will be some good opportunities to invest in viable businesses in a position to expand.

Although I would not advocate increasing credit card debt in uncertain times, I do recommend taking advantage of the protection offered by paying by a credit card; especially for larger purchases, or when placing a deposit.  If you pay by credit card and the supplier enters an insolvency process, the credit card company is obliged to repay you the amount if the product or service is not delivered to you.

Businesses

Very few businesses are “recession proof”.  The impact of customers tightening their belts or, in some cases, going out of business can have a significant impact on your own business.  Although it may not be possible to plan for such eventualities, there are certain measures that businesses can take to ride an economic downturn:

• Try to spread your customer base, so that the business is not reliant on a few customers
• Review credit control procedures to ensure that sales are converted to cash as soon as possible
• Build strong relationships with key stakeholders in the business.  Know that your main customers will continue to require your services or product.  Know that your key suppliers are not going to let you down and know that your bank will continue to support when cash gets tight
• Develop a robust business plan following a review of the business operations and overheads. Perhaps cash can be generated from the sale of redundant physical assets or stocks.  A thorough review of overheads can reveal some important savings
• Take early professional advice to endorse or assist with your plans.  My team and I are always happy to offer advice to assist with a business recovery plan

Finally, there will also be opportunities for businesses to acquire weaker businesses which have left themselves vulnerable to a trade sale.  Our Corporate Finance team would be pleased to advise if you are anticipating making an acquisition.

The best managed businesses will benefit from an economic downturn.  Weaker competition will leave the market and the discipline of keeping a tight rein on your business will benefit it for the future.

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