We all know that COVID and Brexit caused significant negative impacts on the UK economy. David Beckman and Co, LTD, an outstanding accounting firm near Banstead and Epsom, suggested that our business clients keep a cash reserve of three to six months to cover overhead costs. This cash reserve effectively buffered potential temporary decreases in demand for their products and services during this challenging period. The businesses that utilized this buffer strategy before 2020 made good use of these reserves during the past eighteen months. However, the length and severity of the economic instability have continued. When the economy begins to gain traction again, businesses need to pay attention to cash flow. Profitable companies could still fail if they run out of cash reserves.
Many of our clients use Xero cloud accounting, an easy way to perform cash flow forecasting. We can assist you with this process. If you do not use Xero cloud accounting, utilize a spreadsheet that shows your expected incoming and outgoing receipts for at least the next quarter. It is critical that you keep a close eye on where peaks and dips occur so that you can plan. As an example of the importance of planning, if you are currently registered for VAT and agreed to direct debit, payment for the June 2021 quarter was deducted from your bank account in the second week of August. If a business had no cash flow planning, this drop in cash reserves came as an undesirable surprise.
You must plan to rebuild your cash reserves and monitor your cash flow closely. Every business should always have between three- and six months of cash reserves. Unexpected downturns could become recurring, and you need to be able to weather those events. We can help you and manage cash flow planning updates for you. Please get in touch with us at David Beckman and Co LTD and allow us to assist you.