Recession-proofing your UK startup: How an accountant can help

8 min read

As a startup owner in the UK, you are likely aware of the risks of an economic downturn. With the uncertainty surrounding Brexit, inflation, and the looming possibility of a recession, you must protect your business and ensure its survival during such unpredictable times.
An effective way to achieve this is by partnering with a skilled accountant who can assist you in navigating the financial challenges and opportunities that may arise. 

In this comprehensive guide, we will explore how an accountant can help you with recession-proofing your UK startup.

1. Implementing effective cash flow management

Cash flow serves as the lifeblood of any business, and managing it effectively is critical during a recession. An accountant can identify where your money is coming from and where it is going so you have sufficient funds to cover your expenses and avoid potential cash crunches. Implement strategies such as:
  • Resolving any payment issues
  • Sending out invoices promptly
  • Regularly reviewing your receivables
  • Streamlining your inventory management
  • Negotiating better payment terms with suppliers
Keeping a close eye on your cash reserves helps eliminate potential waste or inefficiency and take corrective measures. In addition, managing debts effectively is critical in a recession. Your accountant can provide:
  • Seeking better interest rates
  • Guidance on renegotiating loan terms
  • Consolidating debts to help manage cash flow
They can also develop cash flow forecasts to anticipate your future needs and challenges. As tax obligations significantly affect cash flow, they can ensure you take full advantage of any available tax credits, deductions, or relief schemes, potentially freeing up significant cash.

2. Create a rainy-day fund

An emergency cash fund is an important safety net for startups and an excellent recession-proofing strategy. An accountant can help you determine the appropriate amount of money to set aside to cover at least six months of essential costs, such as payroll, inventory, and utilities.
They can also recommend the best business bank accounts and saving spaces to store emergency funds. This could involve identifying areas where you can cut costs or delay non-essential expenses, or find new revenue streams in case there is a sudden drop in sales, a significant increase in costs, or the loss of a major customer.

Business accountants are also capable of offering guidance regarding secure and low-risk investment options, such as certificates of deposit and bonds that offer a consistent albeit not necessarily high rate of return yet can help you expand your emergency savings.

3. Maximising legitimate expenses and reducing tax liabilities

Some business owners are unaware of the range of expenses they can claim as deductions. An accountant can provide guidance on allowable expenses under UK law, including costs like business travel, office equipment, advertising, and professional services.
Moreover, they can conduct a comprehensive audit of your startup’s expenses to ensure you accurately record and claim all eligible business expenses. This process involves examining your records and receipts, identifying deductible expenses, and properly categorising them.
If needed, they can also provide you with training and tools to help you and your team properly track and document business expenses. This ensures you consistently capture necessary information, making it easier to claim all eligible expenses.

4. Reviewing tax strategies and compliance

Tax laws and regulations are constantly changing, and staying compliant can be challenging for startups, especially in times of economic downturn.
A knowledgeable accountant helps you stay abreast of these changes, interpreting new legislation and adjusting your tax strategies accordingly.

They can work with you to optimise your business structure, find tax-efficient ways to extract profits, or identify relevant capital allowances.

Moreover, having an accountant on your side can be invaluable if your business is selected for a tax audit. They can help you navigate the process, prepare the necessary documentation, and represent your business to the tax authorities, minimising stress and potential penalties and recession-proofing your business comfortably.

5. Ensuring adequate business insurance coverage

An accountant can help you assess your business’ risk exposure and recommend the appropriate insurance policies to protect your financial interests during a recession.
They can help identify potential areas of vulnerability, including risks related to property damage, legal liabilities, or loss of income. An accountant can help evaluate your insurance policies to ensure adequate coverage.
They can also identify any gaps in coverage that need to be addressed. In addition, insurance premiums can be a significant business expense. Your accountant can help you perform a cost-benefit analysis to determine whether the protection offered by an insurance policy outweighs its cost. These may include:
  • Equipment insurance
  • Tax enquiry insurance
  • Public liability insurance
  • Employer’s liability insurance
  • Professional indemnity insurance

6. Reviewing and adjusting pricing strategies

During a recession, you may need to analyse your costs, margins, and market conditions to determine the optimal pricing for your products or services. An accountant thoroughly analyses your production and operational costs to help you understand the potential impact of different pricing strategies on your sales volumes and revenues and leaves room for profit. They can also aid in researching what competitors are charging for similar products or services.

7. Exploring new revenue streams and diversification opportunities

Before you invest in a new product, service, or market, it is crucial to understand the financial implications. An accountant can conduct a feasibility study to estimate the potential costs, revenues, and profitability.
Moreover, if you are considering a business partnership, they can evaluate the financial stability and credibility of likely partners, structuring the partnership agreement in a way that protects your financial interests.
With more business being conducted online, they can also help you navigate the financial aspects of eCommerce, from setting up an online payment system to understanding the tax implications.

8. Maintaining strong customer relationships

Business accountants can provide valuable insights into customer behaviours and preferences, helping you maintain strong relationships with your existing base and attract new ones during a recession.
They can perform a customer profitability analysis, identifying which customers generate the most revenue and why, which can help you tailor your marketing efforts accordingly. For instance, you can offer exclusive discounts, rewards, or loyalty programs.
Also, some customers may struggle to pay on time during a recession. You can ask your accountant to sort out your credit policies and minimise bad debts.

9. Developing a flexible and adaptable business model

An accountant can assist you in assessing your business current structure and operations and recommend changes to make it more flexible and adaptable during a recession. This might include outsourcing non-core functions, implementing more efficient processes, and implementing new technologies or systems.
They can also create financial models to project the impact of changes to your business model, helping you make informed decisions about how to adapt to a recession – for instance, incorporating digital technologies and remote working.

10. Assessing risk tolerance and creating contingency plans

An accountant can help assess your business’ risk tolerance, considering financial stability, operational flexibility, and industry volatility. This understanding forms the basis for your strategic decision-making during a recession.
They can use financial modelling to create scenarios depicting possible economic downturn outcomes. These range from mild to severe recession scenarios that can guide your contingency planning process. Strategies include cost-cutting, securing additional financing, or pivoting your business model.
Over to you
In conclusion, recession-proofing your UK startup and safeguarding its success requires strategic financial management and expert guidance. Partnering with an experienced accountant, such as Golding Accountancy, can provide the necessary support and resources for your business.
Together, we can build a strong foundation for your business, make informed decisions, and seize opportunities even in the face of adversity. Do not wait until the storm hits—reach out to us today and get solid tips on how to recession-proof your business.
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