Coronavirus, Cash and Bookkeeping

If you searched the internet for the biggest challenges facing small businesses in late 2019 or early 2020, invariably the results would have cash flow as the number one challenge.  Businesses need cash to purchase goods or services and to pay employees so it’s obvious when you think about it.  If a business runs out of cash it will go bust and it is the most common reason businesses fail.

However, in March 2020 everything changed and the biggest threat to business success or survival was no longer just cash.  It was Coronavirus and cash.  The Coronavirus lockdown in the spring of 2020 had a huge impact on thousands of businesses in the UK.  In particular, the hospitality sector suffered greatly.

As the pandemic continues around the world, there is some light at the end of the tunnel in the shape of vaccines but will it come soon enough for thousands of small businesses to survive?  Nobody can answer that question right now as the Coronavirus is an evolving phenomenon.  We have new strains developing around the world which are more contagious and possibly more virulent.  We could be set for another few months of either lockdown or almost certainly restrictions on movement and behaviour of citizens.

Small businesses face unprecedented challenges with Coronavirus impacting their ability to generate revenue and therefore Cash.  The trouble is that for many businesses, there are only so many cuts that can be made to keep revenue and costs in line with each other.  For many, this means that they are spending more than they are making and the threat of bankruptcy is all too real.

The advent of Coronavirus has made the need for an accurate cash flow forecast more important than ever.  It is imperative that businesses understand their cash position and how long they can survive. 

The best way to manage your cash flow is to keep on top of your bookkeeping.  When I say the best way, I mean the only way.  If you don’t keep on top of the books you will not know your cash position.  Frequent bookkeeping will give you insight into who owes you money and who you owe money to.  It will give you foresight into upcoming bills like PAYE or VAT.  Basically, it will allow you to determine how much money you spend every month and how much revenue you generate and therefore how much cash you are either making or losing.

Even in these Coronavirus days, it can be easier than ever with dozens of apps that can provide a detailed cash flow forecast and even allow you to look at different scenarios so you can see what would happen if your business dropped off or how much cash you would have if your business started to boom.  However, these apps need to have up to date books completed if they are to provide any level of accuracy.  Like all systems, the output is only as good as the input.

We need business owners to recognise the need to make bookkeeping a priority, give it the attention it requires and value the output from regular bookkeeping.  In my view, the biggest challenge in controlling and managing cash is the lack of priority given to bookkeeping by the business owner themselves.  

But then again, how would they know what needs to be done?  Most entrepreneurs do not go into business to become pseudo accountants or bookkeepers.  They just want to focus on selling and delivering their products or services.  And that is what they are best at.

The advent of the cloud and cloud accounting systems has made it possible for business owners to simplify their bookkeeping processes – but it needs to become a priority for them.  Regardless of how simple things may be to do, if they are not done then they are of no value. 

Throughout the Coronavirus pandemic we have seen TV and Radio advertising by lots of cloud accounting systems suggesting that keeping on top of your books is a breeze.  Nonsense.  There is still lots of work to be done after the receipts or invoices have been loaded into the accounting system.  Today, it is highly unlikely that bookkeeping can be anywhere near as simple as the vendors of these products would have you believe unless you have invested a huge amount of time in setting up your systems to talk to each other.  Most small business owners simply do not have the time or skills to do this.

What small businesses to survive the double threat of Coronavirus and cash is the routine and discipline required to get their bookkeeping completed regularly.  They need to make it a priority and do it every week so they can remember what the money was spent on.  They need to record expenses, chase overdue invoices, etc. and keep on top of their most important asset – cash. 

My business partner often uses a gym analogy.  You can join a gym and pay the monthly fee but, if you don’t go and work out regularly then you will not see any benefit and you are wasting your money.  You must invest time and effort into getting fit.  It’s the same with your books.  You must make it a priority and invest the time and effort it needs to get control of your cash and the future viability of your business.  

In these days of Coronavirus, arguably the most important function in your business is bookkeeping.