Solvency continues to be a pressing issue

The recent rise in inflation and interest rates underlines the fact that the UK and world economies are still suffering from the effects of the continuing war in Ukraine.

Accordingly, if you have managed to retain profits in your business this buffer will help to see you through difficult trading periods as we endeavour to emerge from current challenges.

How long these reserves will last depends on how effectively you manage the process.

Planning is absolutely vital.

You need to figure-out what your short-term prospects for trading are likely to be and then quantify the minimum level of costs that you will need to carry in order to meet:

  • existing fixed commitments, rent for example, and
  • other variable costs to deliver any future trade.

If these calculations reveal that you will be trading at a loss for an extended period, the only way your business can survive is if:

  • your retained profits and personal capital introduced cover these losses; and
  • if reserves are exhausted, you are prepared to borrow to fund any shortfall.

Having real-time data at your fingertips will help, as will creating a forecast or budget for at least the coming year to see how expected trading will affect cash flow and solvency.

Please call, we can help you consider your options.

Source:Other| 26-03-2023

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Posted on 1st Nov 2023

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