Keep your nerve and stay patient

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As restrictions imposed to control the Covid pandemic are lifted it would be tempting for businesses to ramp up their activity in order to return to pre-pandemic normal.

But problems remain. Materials and components costs have been rising, and still are. The global supply chain is still broken. Recruitment difficulties and labour shortages are still an issue.

Getting all these components right and working smoothly is a bit of a jigsaw puzzle.

We have talked about this before but it seems to be relevant again now.

There is a danger in ramping up activity too quickly as the situation eases. Accountants call it over-trading.

This is when a business runs up a big rush of sales on credit without the cash to pay its suppliers and it can rapidly become insolvent.

It is easy to be misled by the figures on the balance sheet, which may paint an over-optimistic picture of the cash flow forecast, especially when some of this is predicated on fixed assets and on the prospect of new investment from lenders or investors.

Instead, the business should focus on cash management, which gives a much more realistic picture of assets and liabilities.

You might be interested in this blog written some time ago about the psychology involved.