War Chest

Soldiers and military leaders kept it in their homes or barracks, to store arms and armour.

And when they launched their military campaigns they took it with them, to store spoils which they could spend along the way. The purpose wasn’t just to feed their armies but to buy their way out of trouble…

Today our war chests are metaphorical, used by companies rather than armies. But it’s still the same idea: We build up funds so that if the need arises, we can save our company’s skin…

And that’s exactly what you need in place right now, as we enter a huge economic crisis nationally and globally.

As I wrote recently, the economic conditions we’re going to be facing in coming months are likely to be worse than during COVID. We’re already seeing hikes in inflation and interest rates, as well as worker shortages and slower growth.

This is in some ways a war economy, as Putin uses energy prices to pressure the West for supporting the Ukraine and placing sanctions on Russia. The war has already disrupted supply chains and food prices as well.

For businesses there are two big dangers.

You could end up with a lot of additional expenses which you can’t easily cover. For example, you may have to spend more money than you planned recruiting in this environment, or if one of your suppliers goes out of business their replacement may cost more than you’re currently spending.

You may also end up with cashflow issues, because your customers are taking longer to pay, you lose customers, your expenses go up suddenly, or many other reasons… And you simply run out of money.

This is the big business killer. Money is the beating heart of any business. When it stops flowing, your business grinds to a halt and eventually dies.

Both these scenarios take money to solve – or at least, to tide you over until you can come up with a long-term solution.

In short, they take a war chest.

Now, ideally, this is something you will already have in place, much as individuals build up savings for a rainy day.

But if you haven’t, it’s not too late to get started. On the contrary – you must start thinking now, proactively, about how to free up cash in case you face difficult circumstances during this growing financial crisis, even if your business feels like it’s absolutely solid right now…

…Because if you have to come up with spare cash under pressure, once you’re in trouble, it’s going to be much more difficult or even impossible.

Planning for worst case scenarios is simply the responsible thing to do. And under current conditions, “worst case scenarios” are much more likely than they used to be…

So here are some basic steps you could start with:

>> Look at money owed to you by customers. Are there any outstanding debts you could call in?

>> Look at the way you collect money. How long to your customers take to pay and could you speed this up? Are your people efficient at giving customers all the information they need to pay promptly, and how do they follow up non-payers?

>> Look at your assets. Do you have any you could sell off to raise money – for example, machinery you no longer use, and so on?

There are many other steps you can take but it always depends on your company’s individual circumstances. We need to consider your assets, your debts, balance sheet, payment cycles, credit control, expenses and wastage, and so much more.

So while “free up money” sounds simple, it’s not always straightforward to do. And you may not know where to begin.

That’s where we can help.

Getting your finances in order to prepare for a downturn is part of basic financial management and integral to the work we would do for you, as an Outsourced Finance Department client.

We’ll give you a very clear, accurate picture of your current financial circumstances so you can take decisions which are grounded in reality.

We’ll also map out some of the main risks you face, so you have a clearer idea of how much money you might need in reserve.

And finally, we’ll look at all the facts and figures, and help you make the most financially sensible decisions around how and where to free up cash. You do not have to this alone!

To find out more about the Outsourced Finance Department and how it can help your company, hit ‘reply’ to this blog or call us on 01279 647 447. We’ll talk about how you manage your finances today and what you need to achieve financially, and I’ll also tell you more about how we work. If there’s synergy we can discuss next steps, and if not, I’ll still leave you with some good advice on how to better manage your finances to weather the coming storm.

Warmly,

Garry