Business and Xero accountants and advisors

How to Keep Your Profits Growing When Interest Rates Go Up

3 November 2023

In today’s ever-changing economy, business owners and financial managers face many challenges. One big challenge that can affect your profits is when interest rates continue to climb and no one knows when it will hit its peak. At Wessex Commercial Solutions, a Chartered Accounting firm nestled in the scenic areas of Devon and Somerset, we understand how important it is to keep your profits growing even when the economic tides are shifting. In this blog post, we’ll share some simple yet powerful insights to help you not only survive but thrive in a world of rising interest rates. Whether you’re looking for specialist Xero accountants in Devon or Somerset or seeking advice from experienced “been there” business advisors, we’re here to guide you every step of the way.

Understanding the Impact of Rising Interest Rates:

When interest rates go up, it obviously affects your business in several ways, predominantly making borrowing money more expensive. This means you’ll pay more interest on loans and credit lines, which can eat into your profits. This is especially true on long term loans, where we have seen extended repayment periods, at a similar or more expensive monthly cost. Plus, higher rates might cause people to spend less and invest less, which could hurt your sales and income. It’s therefore vital to stay ahead of these changes and adjust your financial plans accordingly.

Smart Cash Flow Management:

To keep your profits growing, you must manage your cash flow wisely. Start by looking at your current financial commitments and finding ways to cut costs or negotiate better loan terms which have lower interest rates. For example, if you have a Bounce Back Loan at 2.5%, have you asked for a 6 month repayment holiday and extended your term from 5 to 10 years? We are not going to see such low interest rates for a long time, and maybe never in some of our business lifetimes. You should also have at least a short term cash flow forecast to predict when you might have funding deficits, so you can deal with any issues now, rather than getting nasty surprises. At Wessex Commercial Solutions, we can help you create a cash flow strategy that fits your business goals.

Borrowing Money:

When considering borrowing money from a bank or financial institution, there are several key factors they will evaluate. Firstly, they’ll assess the quality of your management team and how well your business is run. Demonstrating effective leadership and sound management practices like up to date management accounts and cash flow forecasts can in still confidence in lenders and secure better rates of interest. Secondly, they’ll want to know if your business can comfortably repay the loan. This involves providing evidence of the business making enough profits after new loans, taxes and dividends. Lastly, security matters, and many lenders may ask for a personal guarantee to ensure the loan’s repayment. So do you have a Personal Guarantee Register and understand what happens if the business gets in  trouble and/ or they call on the guarantees?  In the ever-changing landscape of rising interest rates, understanding these aspects can be crucial in safeguarding your profits, securing the financial support your business needs and helping you to sleep at night without worry.

Keeping your profits growing and having enough cash when interest rates rise takes careful financial management and strategic thinking. At Wessex Commercial Solutions, we specialise in helping businesses in Devon and Somerset with their accounting, finances, and advice. Whether you’re on the hunt for expert Xero accountants in Devon or Somerset, or you need experienced “been there” business advisors to help you through these challenging times, we’re here to back you up.

Contact Wessex Commercial Solutions:

  • Phone: 01935 385929
  • Email: info@wessexcommercial.com
  • Website: www.wessexcommercial.com

Don’t let rising interest rates catch you off guard. Get in touch with us today for personalised financial solutions that will keep you and your business thriving in any economic situation. Your success is our top priority, and we can’t wait to work with you.

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