Cash is king

Managing cashflow in uncertain times

Business confidence dropped sharply during the second quarter of 2008 but a recession remains unlikely, according to the Institute of Chartered Accountants in England and Wales.

The Institute of Chartered Accountants in England and Wales (ICAEW) is warning small business owners to protect their cash assets at all costs to survive increasingly difficult economic conditions.

The organisation revealed business confidence in the UK saw a sharp fall in the last quarter, with the Business Confidence Monitor falling from -7.2 in the first three months of 2008 to -19.7 in the second quarter.

"As the decline in confidence is now affecting all areas, if you haven't already done so now, is the time to take steps to get through this phase of uncertainty," said Michael Izza, Chief Executive of the ICAEW.

"Cashflow management is critical. If there is a conflict between making profit and generating or saving cash, go for the cash alternative. Loss-making businesses can survive, but businesses that run out of cash will not."

The research revealed the economic downturn was affecting all business, with those in the property, banking/finance and insurance sectors the worst affected.

The property sector fell to the lowest level ever recorded in the index at -47 while the knock-on effect also dragged the construction industry down to -24.2.

This was borne out by figures released by the Royal Institution of Chartered Surveyors, which predicted house prices would fall by 5% during 2008 and property sales would decline by 40 per cent.

"The slowdown in the economy is no longer just an issue in the City of London," added Izza. "It has spread to all sectors, to businesses of all sizes and across all regions. Nowhere in the UK is business immune to the fall out from recent issues in the global financial markets. Significant domestic developments such as falling house prices only reinforce the concerns."

But the ICAEW remains confident the slowdown will not translate into a wider recession, instead predicting a low level of growth in 2008.

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