If politicians have it right, we may be approaching the end of the major disruption to economic activity of the past two years.
Which is great news for those trades badly affected by continuing lockdown and other restrictions.
Unfortunately, rapid growth following a long period of depressed trading conditions can prove to be disastrous.
The danger arises if you offer your customers more generous trading terms than your suppliers and you have very little left in your bank accounts.
Consider that you have £1,000 in your current account and have no chance of overdraft or loan support from your bank. Your sales for January 2022 are excellent, £20,000, but to secure these sales you were obliged to offer customers 60 days to pay their bills.
You were able to supply goods from stock so there is no need to immediately re-stock. However, in the month of January, you need to settle past VAT and Corporation Tax liabilities amounting to £10,000 and in January and February general overheads (wages, rent, transport costs etc.) totalling a further £9,000.
The terms you have offered customers mean that the sales you have achieved in January will not generate cash-flow until March and you are faced with fending-off HMRC (£10,000) and other creditors (£9,000) for two months with just £1,000 in your bank account.
Business owners facing this dilemma need to consider their options and creating a simple cash-flow forecast will reveal the peaks and troughs in your bank balances and give you time to consider your choices.
Please call if you need help in drawing up suitable cash-flow forecasts.