• Register
Return to: Home > News > Small businesses urged to stress test their finances

Small businesses urged to stress test their finances

As ONS data reveals just under a quarter of all businesses are unsure about their cash position, Purbeck Insurance Services is urging small businesses impacted by COVID-19, to stress test their finances.  

Purbeck has also launched a free online guide to the support packages and measures SMEs can consider during the Covid-19 pandemic and beyond. 

Todd Davison, MD of Purbeck says: “It is vital that in the midst of so much uncertainty, small businesses have a firm grasp of both their current and future cash position.  Use an accountant to help you if necessary.  Only by stress testing your finances can you understand the measures you need to take to build your financial resilience.”

Purbeck’s tips for stress testing business finances

  • Look at cashflow and forward project how it might look in 30 days, 60 days and 90 days’ time to help identify any gaps in the working capital position.  
  • Take a realistic, optimistic and pessimistic view for each of those timelines. 
  • Consider the failure of a key customer or customers, the possibility of being paid late or the impact of a failure in your supply chain. 
  • This will provide a good idea of the business’s financial position in a range of potential scenarios.
  • Look at your current ratio - that is your current assets compared to your liabilities which will help you understand your ability to meet short term supplier and HMRC obligations.  This would apply if you have low gearing i.e. the low use of external debt such as bank loans.
  • If you have slow moving stock you need to look at your liquidity ratio. Liquidity ratios determine a business’s ability to pay off current debt obligations without raising external capital.
  • Target ratios of 1:1 or higher.  You can even apply your own working capital buffer of, say, 20-25% to these ratios to get to a ratio of 1.25:1 to maintain an adequate level of contingency funding.
  • If your business is highly geared, the current/liquidity ratios are important but also consider your debt-service coverage ratios i.e. the operational free cash flow (Earnings before interest, tax, depreciation and amortisation) your business is generating to meet repayment obligations to external debt providers including interest.

Todd Davison concludes: “We know many of our customers have already contacted landlords and current loan providers to arrange a payment holiday to help ease pressure on cashflow.  The Government’s support has been crucial but this does have a shelf-life and must be used to sustain businesses rather than help them grow.  If you do decide to take out a loan with a personal guarantee attached, make sure this risk is mitigated as far as possible through Personal Guarantee insurance.

“Keep talking to suppliers and customers who are likely to be in the same position.  Constructive, transparent dialogue within the supply chain can help manage expectations and identify a collective way forward.”


Top Content

    Brazil: regulation and technology form basis for recovery

    Opportunities in the capital markets and the ever-growing influence of technology are expected to have a significant impact on the Brazilian accounting profession over the next 12 months, writes Paul Golden.

    read more

    Mentoring support and the opportunity to delegate

    Jon Lisby will be known to many from his former role as CEO of Kreston International. Here, he explains the background to his new venture, Global Alliance Advisory Services (GAAS), and how he aims to offer support to alliance CEOs.

    read more

    Global by name, global by nature

    Stephen Heathcote became chief executive officer of PrimeGlobal on 1 June 2019. Robin Amlôt met him to discuss the various new challenges that he has taken on, and his ambitions for the association.

    read more

    ARGA team, assemble!

    The new top team has been named that will see in root-and-branch reform at the Financial Reporting Council (FRC) as it transforms into the Audit, Reporting and Governance Authority (ARGA). Will the new duo be as dynamic as some are hoping? Robin Amlôt reports.

    read more


    As the Coronavirus (COVID-19) continues to spread across the world, the International Accounting Bulletin and The Accountant will be collating all the latest news and updates from the profession on the pandemic’s impact.

    read more
Privacy Policy

We have updated our privacy policy. In the latest update it explains what cookies are and how we use them on our site. To learn more about cookies and their benefits, please view our privacy policy. Please be aware that parts of this site will not function correctly if you disable cookies. By continuing to use this site, you consent to our use of cookies in accordance with our privacy policy unless you have disabled them.