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Financial Resilience

Making business decisions with confidence

We all know that having financial confidence in your personal life puts you in a better position to make informed decisions, for example:

  • Can you afford to go on holiday this year?
  • When will the mortgage be paid off?
  • Do you really need a new car right now?
  • How much should you invest in your pension?

The same principle applies to running a small business. If you understand the financial aspects of your business and how to interpret the information, you can use it to grow. You will have financial confidence that your business has the agility to adapt to unforeseen trading conditions and you will be able to make better and timely business decisions:

  • Is it the time right to invest in new machinery?
  • How many new staff should I set on?
  • How many debtors does my business have right now?
  • If there is an emergency, how much do I have set aside to deal with it?

What is financial resilience?

Financial resilience is about the capacity of businesses to absorb a financial shock or downturn. It is how some businesses can continue to grow, even when normal trading conditions are affected by sudden and unforeseen changes. The events of the last couple of years and the ability of some businesses to cope more easily with the effects of the pandemic have brought the importance of building business resilience to the fore. We have seen how companies with large reserves have been able to adapt quickly to cloud computing, enabling their workforces to work from home, where others have struggled. Some companies have been able to pivot their offering and even capitalise on the change in consumer buying habits. Some agile businesses have been able to establish a competitive advantage and have thrived, despite difficult the trading circumstances.

With the current increase in energy costs, rise in inflation and war in Eastern Europe now added into this equation, it is more crucial than ever for business owners to have financial literacy. Businesses with financial resilience are able to withstand or even thrive during a period of difficult trading conditions. You can read some tips for ensuring you have financial confidence in your business in this inDinero blog by Tony Esposito.

Being in control

I am always surprised by the number of owners of small businesses who leave financial details to advisors or accountants, without understanding or possessing financial literacy themselves. But for your business to have financial resilience, you should know how money moves through it, how much your business is owed and how much it owes other companies. I know that finance and accounting is complicated and full of jargon that can be difficult to understand for those who do not have a background in finance, yet it is critical to the success of your business that you can make sense of financial information, documents and reports.

Do you understand your company’s financial statements? If the answer is no and you need to get comfortable with the numbers, talk to us at Mellor Financial Training. Our speciality is finance for non-financial managers, including business owners and their teams. In fact, anyone in business who needs to get to grips with financial information so they can make better use of it. Aimed at those without a financial background or with a finance skills-gap or requirement, our training courses cut through the jargon, giving you financial confidence, empowering you to make better informed decisions. For more information and to check out our upcoming courses and webinars click here.

Financial planning

Making sure you have a financial plan in place at the beginning of the year is the first step towards building financial resilience in your business. Playing a key role in your financial plan are the three major accounting statements:

  • Cash flow forecast
  • Profit/Loss
  • Balance sheet

Knowing how to manage the cash flow of your business is critical. A cash flow analysis will help you to identify late payers, identify inefficiencies and pinpoint areas where you can cut or reallocate production, component and resource costs. Understanding where your money goes gives you the flexibility to identify new opportunities, allowing your business to pivot or diversify into other areas, so it continues to grow even when sales from your regular income stream may be falling.

Use your financial plan to set your business goals and determine how you are going to achieve them by establishing KPIs against your objectives. Checking your progress against the cash flow forecast will show whether you are on target to reach your business goals and highlight areas where you may be falling behind. A financial plan will help you to understand profitability and what actions you can take to improve. You can read my blog about understanding profitability here.

Building trust and security

Again, just like in your personal life, if you feel secure in your financial plans you will have the financial confidence to know you are prepared for any situation. Build your reserves or an emergency/slush fund, so that if the unthinkable happens and you have to write off a bad debt, action a product recall or defend yourself against a lawsuit, you have the necessary funds in place to finance it. Pay back your debts as soon as you can and make sure your customers pay you on time. If you can demonstrate to your bank or investors that you have met or exceeded your financial goals and obligations, you will instil them with the confidence to back you when you go to them for help.

Knowledge is key

With all things, knowledge is the key to confidence and finance is no different! Business accounts are not just the end result of a year’s trading. Once you know how to interpret them, you can use the financial information as a basis for building business resilience and making important business decisions.

If you own a small business and feel you or your team has a finance skills gap, Mellor Financial Training courses are designed for you because we cut through the jargon and complexity of business finance. All our courses are run by experienced Chartered Management Accountants to ensure we reflect the ‘real world’ view, not a purely academic one. And with flexible learning options, you and your team can attend sessions in Leeds or Manchester or take part either via e-learning or live online sessions. Alternatively, we can deliver our training in-house exclusively for your organisation with specific content that meets your training needs. Talk to us today to find out how our upcoming finance for non-financial managers course can help you to gain financial confidence in your business.

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