Cash Reserves Essential in Slow Economic Recovery
The British Chambers of Commerce (BCC) has urged small businesses to maintain their cash reserves, as economic recovery may take longer than expected.
The BCC’s chief economist, David Kern, said that the economy is recovering but growth is likely to be “patchy” so businesses need to be cautious and not overspend. “They need to have enough cash to withstand knockbacks,” he said.
“Essentially, there is going to be a recovery in 2010, but it is not going to be strong initially. Businesses have been very resilient in this recession and that’s because they have done all the right things — for example, conserving cash.”
“There are many pitfalls ahead which all point to the need for great caution. Businesses should not move to a position where if there’s a setback or a double dip then they don’t risk failing again.”
A Forum of Private Business spokesman, Phil McCabe, agreed that a vigilant attitude towards cashflow is essential for firms to survive the year ahead.
“It’s important for firms to invest in recruitment, equipment and stock in order to meet a potential increase in demand, but they must be careful not to overstretch themselves. For example, some firms will need to recruit more staff to increase productivity, but they should make sure they do this gradually.
“Firms should analyse the state of their business and assess what would happen in different scenarios, and then decide the extent to which they can invest. They should also keep track of payments owed to them by customers, as that can impact on cashflow.”
McCabe said that the shortage of available bank credit has made it difficult for firms to manage their cashflow.
“However, firms can ensure their management accounts are in order to increase their chances of borrowing funds,” he added.