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Ready for Recession?

» Posted on: 4 December 2008
» Posted by: Andrew Livesey
» Service area: Business Deals / Deals

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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 applicable!

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 / No
  • 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 / No

Financial Information

  • 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

Your Customers

  • 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 / No


How many “yes” answers do you have?

0 – 5 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 intervention.
6 – 10 You should seek immediate help from external professionals to address the business risk. If you do you may make it.
11 – 15 You have made a good start. Address the short comings now to improve your prospects of beating the recession.
16 – 20 Solid foundations but address the remaining issues now.

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