Deep down inside me there is the chartered accountant I have been for almost 40 years now. And as an accountant I know that the biggest stress that almost any business can face is from something called 'over-trading'. That happens when it tries to grow too quickly, and despite being profitable it runs out of money as a result - as it just can't get enough money in quickly enough to pay its debts as they fall due.
The problem for many businesses after Covid is that the might face this situation as they try to get back to what they think to be normal too quickly, and will run out of money as a result. The government has done well in keeping businesses going until now, but the crisis is not over yet and more support is going to be needed if we're to successfully reopen the UK economy any time soon. In this video I explore this issue, and its consequences.
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History shows that more businesses fail as the economy comes out of recession than in the recession itself.
There is a very interesting and thought provoking article here about the role of mutual credit networks in promoting economic resilience, particularly to networks of SMEs
https://www.mdpi.com/1911-8074/13/12/295?fbclid=IwAR24BrzkPncgy2WER6JkkOtT1zrr682Ew_Aw14lM2vfM25csGEYPUvx0ans
It seems to me that mutual credit networks will have an important role top play in a reformed financial system – but they don’t need to rely on central government to come into existence. In this study the network did not clear completely, meaning some debts were left outstanding and some parts of the network remained in credit – to me this suggests the need for a supporting role by a local bank or credit risk insurance provider.
Cash flow is king
[…] noted in a video that I published yesterday that the biggest economic stress from Covid is yet to come. Businesses reopening at the same time […]