The headline figures from the Pre Budget
Report make quite staggering reading. The Government is set to
borrow £118 billion in 2010. Even this is insignificant compared to
the £434 billion the Chancellor plans to borrow over the next five
years on top of the £77.6 billion that he is borrowing this year.
National debt will peak in 2013 at 57% of national income.
Staggering numbers on any scale, but reflective of the fact that the
UK is now in a recession which will be longer and tougher than even
the most pessimistic analyst feared.
In any recession there will be casualties. However when
taking stock of the coming months it is useful to undertake a health
check on the state of your business. Set out below are a number of
key indicators for you to answer to help you work out whether your
business is on the best possible footing to cope with the effects of
recession. Give it a go, be ultra honest and answer yes or no as
Financial Health Check
- Are you making profits or have you done so in the last two
years? Yes / No
- Do you have net current assets? Yes /
- Have your stock levels and value of work in progress
decreased or stayed the same in the last twelve months?
Yes / No
- Is the amount of time which it takes your customers to pay
you remained constant or even reduced in the last twelve months?
Yes / No
- Are the interest payments that you have to make covered by at
least 1.5 times by your profits? Yes / No
- Is your gross profit increasing? Yes /
- Do you have monthly management accounts and are they
available promptly at month end? Yes / No
- Do you update your forecasts with actual figures on a month
by month basis? Yes / No
- Do you have a system to monitor your rolling cashflow
requirement and available working capital including bank
facilities on a monthly basis? Yes / No
- Do you know what your key performance indicators are and are
they carefully monitored? Yes / No
- Have you kept within your current limits on borrowing without
excesses? Yes / No
- Do you hold monthly board meetings and do you have a system
to record decisions and an action plan to implement those
decisions? Yes / No
- Do you review your strategy at each such meeting and update
it to reflect current market conditions? Yes / No
- Do you have a robust credit control system?
Yes / No
- Do you have an effective plan to keep stock levels down to a
minimum? Yes / No
- Do you have an accurate record of current work in progress?
Yes / No
- Are your lead times reasonable and regularly monitored?
Yes / No
- Do you have reliable suppliers of quality products who
delivery on time? Yes / No
- Do your key employees understand the financial strengths and
weaknesses of the business and are they motivated to keep ahead
of the competition? Yes / No
- Do you have loyal customers and an infra structure designed
to keep their business? Have you mitigated against the risk of
placing all your eggs in one basket? Yes /
How many yes answers do you have?
||The business is not built on solid
foundations and is not being managed effectively. You are
unlikely to make it through a recession without professional
||You should seek immediate help from external
professionals to address the business risk. If you do you
may make it.
||You have made a good start. Address the
short comings now to improve your prospects of beating the
||Solid foundations but address the remaining
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