As UK businesses weather the economic slump, a prolonged period of low growth and fresh spending cuts, staying out of the red may prove to be a mammoth challenge. With tax rises on the horizon as announced in the Autumn Budget and limited refuge from the Spring Statement, the new 2025/26 tax year will be a frugal one for British businesses.
Last year saw non-essential spending dip to the lowest point in 2024 and a historic jump in the number of SMEs in critical financial distress. While businesses earnestly wait for the cost of living crisis to subside to encourage a boost in consumer spending, company finances must be in robust shape to survive the economic drought. Dean Lomas, Business Development Manager at Begbies Traynor Group Birmingham, looks at how to build a resilient business and keep the risk of insolvency low amid the economic slump.
Managing insolvency risk in the new tax year
As trading conditions remain harsh and employers brace themselves for higher labour costs due to the upcoming increase in Employers’ National Insurance Contributions, the risk of insolvency remains high.
Here’s what businesses can do to strengthen their financial footing as they enter the new tax year. From tracking company cash flow to performing essential cost cutting, we run through essential checks business owners must factor into their routine to keep company finances in check.
Checking the tipping point of the company balance sheet
The company balance sheet tracks the value of company assets vs liabilities. If company liabilities overwhelmingly outweigh company assets, this is a red flag as the company owes more than it is due. This tipping point must be actively monitored to understand the level of insolvency risk the business is exposed to.
Is company cash flow positive or negative?
Company cash flow provides a window into the financial health of a business. It is an invaluable tool used to perform a health check on a business as if company cash flow is positive, it’s able to afford liabilities, however, if company flow is negative, the health of a business can spiral out of control as cash flow is the lifeblood of a business.
Performing essential cost cutting
Forensically assess every area of the business that generates a cost to understand company outgoings, then ask two questions:
– Can I eliminate this cost?
– If not, can I reduce this cost?
This can be applied to every area of the business, from the operational systems in use, and the range of services on offer to the number of non-essential staff employed.
Streamlining company operations
By identifying operational and structural inefficiencies, a business can shed unnecessary costs or reduce costs. Corporate simplification for businesses with multiple entities can also drive substantial savings immediately and over the long term.
Don’t delay professional advice
While seeking professional advice from a licensed insolvency practitioner is often viewed as an unnecessary expense, professional guidance when sought early can help avert a financial crisis which could otherwise push a business into a terminal state.
Visit https://www.begbies-traynorgroup.com/ for further information.
