A weakening currency, increased mortgage rates and rising costs all make for rather difficult times ahead. You’ve looked at your costs and you have started cutting them sensibly to remain lean. You’ve also looked at your prices and put them up in line with inflation. Jonathan Amponsah CTA FCCA and chief executive of The Tax Guys details how you can best prepare for the economic shock

What other areas can you focus on during the cost of living crisis

Cashflow management

In addition to cash forecasts, regularly review your Cashflow Statement. This will compare your previous cash balance to your current cash position. It will reveal what is causing the differences in cash. It may well be that you did not make enough profits that month and this document will tell you that. Or perhaps you are not collecting cash fast enough.  

Next, obtain your aged debtors and aged creditors list and calculate your cash conversion cycle. Ask your accountant to confirm the average number of days parents take to pay you. Let’s say its 45 days. Then confirm the average number of days you take to pay your suppliers. Let’s say its 30 days. Your Cash Conversation Cycle will be 45 days less 30 days = 15 days. So, you are paying your suppliers 30 days but then you are receiving cash from parents 15 days later.

Go through your aged debtors and pick up the phone to chase debt. According to research by a debt recovery company Echo Managed Services, 40% of debt gets paid after a telephone call reminder.

Marketing activities

Avoid the mistake of cutting back on marketing. Whilst most nurseries will do this, it will leave an opportunity for you to keep your brand in front of parents. Free marketing activities like google reviews and posting useful educational contents that help parents can produce good results.

Acquire or merge with local nurseries

If you’re looking to grow during difficult times, then potentially you should consider buying another nursery. There are many reasons to do this including helping out some of your competitors who may be looking for a way out during the cost of living crisis. In addition, you don’t have to go through a marketing and sales parade to win business. Now if you are thinking that buying another nursery is way beyond your reach, think again. You will be surprised what you can achieve by simply having a warm and caring conversation with your competitors to see how they are coping.

Claim tax refund on losses

If your nursery has made a loss or it’s likely to make a loss due to rising costs, don’t forget there are tax rules that allow you to recover some of the taxes you paid when times were good. You can go back one to three years to claim a tax refund on some of the taxes you previously paid. This will depend your accounting year end. Make a note to speak with your accountant or a tax advisor as soon as you possibly can.

Exit profitably

The turbulently times ahead may well present you with an opportunity to exit your nursery profitably.

Whether you plan to sell the nursery in 6 months or more, you need to start working on the sale today and ensure all decisions you make are geared towards its eventual sale. This includes speaking to your specialist advisors as soon as you can. You also need to consider a number of important questions including:

• What price range you want to sell for?
• Do you have a plan after the sale?
• What kind of buyer do you intend to sell to (perhaps even your management team?)

One of the things that can put buyers off is having to wait long to get basic things like a copy of the lease or last year’s accounts. Do carry out a due diligence on your nursery, to start looking at the business from the eyes of the buyer and prepare the nursery early for sale.

During financial due diligence, buyers would normally test your knowledge of your nursery’s finances by attempting to tie you up in knots with your numbers. It’s common for buyers to pick holes and reduce the value of the nursery. So do get comfortable with things like your profit and loss, your balance sheet and how the numbers fit in with the value of your business. Above all, do negotiate from a position of strength and be prepared to walk away.

Make yourself redundant

Assuming you are an owner and director of your nursery, consider making yourself redundant as a way to weather the storm during the difficult times ahead. If you have been preparing to exit, or have put the necessary management team in place, or simply feeling overwhelmed, then distance yourself for a bit, take some time off and see how the nursery operates without you. This will also help you to look at the nursery with an objective eye and implement other necessary changes. A good and effective management will make this a lot easier as they will be able to continuing operating at high standards. That will also be an attractive element to prospective buyers.

Critically review your business model

During difficult times, it is important to step back and critically review the nursery’s business model. What are the pinpoints and do you have to continue doing business the old way?

Recruitment and retention will continue to be a challenge. Have you considered alternative ways of recruiting? Have you considered outsourcing HR or operations? There are companies out there who will take away this pain and agree a revenue share.

How about finance? Do you need to have all your finance team in-house or can you outsource all or part of the accounts and only pay a fraction of the costs? 

Do you own nursery buildings that are likely to be empty due to closure? Is there an opportunity for this in the world of tax and commercial property development?

Keep reviewing and keep asking questions to challenge the status quo.

Conclusion

Prepare for the turbulent times ahead whilst remaining open to the opportunities. Keep things in balance and embrace financial engineering and business re-modelling. Avoid doing it all alone. Seek the right help at the right time.

About the author

Jonathan Amponsah CTA FCCA is an award winning accountant and tax adviser who helps Nurseries grow and scale profitably and tax efficiently.  He is the chief executive of The Tax Guys.