The Rat is dead, long live the Ox – What the Ox can teach you about your business in 2021

The Ox is the second of all animals in the Chinese Zodiac. According to one myth, the Jade Emperor said the order would be decided by the order in which they arrived to his party. The Ox was about to be the first to arrive, but Rat tricked Ox into giving him a ride. Then, just as they arrived, Rat jumped down and landed ahead of Ox. Thus, Ox became the second animal.

In the context of business we might think of the Rat as cash and the Ox as profit.

In Chinese culture the Ox is a valued and trustworthy animal. Oxen are honest and earnest. They gain recognition through hard work and they think logically.  Unlucky things for the Ox include the colour red, often used to denote a negative value in a profit loss statement.

Financially, the Rat does like to save, however their love for hoarding cash will sometimes cause them to waste money on unnecessary things and they will continue to build other liabilities for the future (think deferred vat, bounce back loans, Coronavirus business interruption loans).

The Ox and the Rat are known for their great compatibility and help each other – just like cash and profit.

‘So what’s all this bovine and rodent stuff got to do with me?’ I hear you ask..

UK Government support measures are likely to have depressed corporate insolvencies in Q2 and Q3 2020, leading to a backlog. We expect corporate insolvencies could be much higher in the first half of 2021 compared with previous years. They could potentially be even higher than the average 60% increase experienced at the height of the global financial crisis in 2009.

Never has it been more important to know (and I mean know) the true financial position of your business.  It’s not enough to look at cash and think all is well.

If you don’t know the true financial position of your business, taking into account all future liabilities and assets and making adjustments for things like deferred income, accruals, deposits then you will find the following become issues:

• Dividends – these can only be paid out of retained reserves. If you’re not producing an accurate balance sheet you do not know what your retained reserves are.  If you don’t know what your retained reserves are, how can you determine that as a director you’re fulfilling your legal duties. You don’t want to be in a position where you’ve paid out dividends that might be illegal and at risk should the business get into difficulty and an Insolvency Practitioner comes knocking on the door to recover them.
• Solvency – a key obligation for a director is to ensure the business is not caught wrongfully trading – often indicated by the business being insolvent from a balance sheet point of view
• Ability to sleep at night – being informed creates confidence which will have a positive impact on your ability to sleep at night – we all know the benefits that brings
• Ability to get a mortgage – the absence of quality and timely information can stop you getting the dream house that suddenly becomes available to buy
• Better cash management – we see businesses running an overdraft at the sae time as having money ‘squirrelled away’ for future VAT/tax liabilities. Whilst not a bad practice, it implies the business lacks confidence in its financial information and is wasting money on servicing an overdraft that they don’t need.
• Preparing for sale – if you’re thinking of selling your business at some point the ability to provide accurate, monthly historic financial information will be invaluable and help you get the best deal for you and your business
• Tax planning – without an accurate view of your financials you’ll miss out on opportunities to save tax
• Longer term cash flow planning – things might look fine now, and for the next few months but what about 6 – 12 months’ time?

If you want to ensure the prosperity of your business or just get more sleep through 2021 you need to think like an Ox and make sure you’re taking responsibility for your business, your team and your family.  Make it a priority to have regular quality financial information at your fingertips and if you need help just ask!