Time to revisit solvency
If you have managed to retain profits in your business this fat-on-the-bone will help to see you through loss making periods as we endeavour to emerge from COVID disruption, hopefully, later this year.
How long these reserves may last depends on how effectively you manage the process.
If you are impacted by COVID disruption, you will need to ensure that you avail yourself of any Government funded grants via your local authority and wage costs can be 80% covered by the extended furlough scheme. But these will not cover all your fixed costs.
Accordingly, planning is absolutely vital.
You need to figure 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 or
- If reserves are exhausted, are you prepared to borrow funds – Government bounce-back loans for example – to fund the excess losses?
If you need help with the number crunching please call.
