As of February 22nd, the UK’s official credit rating was downgraded by investor service Moody’s from Aaa to Aa1.
The move implies that investing in UK government bonds is a slightly less ‘good’ idea than was previously the case – but the reasons behind it have lessons to learn for small businesses throughout Britain.
Moody’s say that one of the three key drivers of the decision was the following:
“As a consequence of the UK’s high and rising debt burden, a deterioration in the shock-absorption capacity of the government’s balance sheet, which is unlikely to reverse before 2016.”
Despite this, the service stresses that the UK remains extremely highly creditworthy, with a stable outlook on the Aa1 rating, citing the degree of insulation that arises from the UK being outside of the Eurozone as one reason behind this.
So how does this compare with the small businesses that are so often referred to as the beating heart of the British economy?
Well, the UK’s existing debts – and, therefore, its ability to withstand future economic shocks – make it less resilient to further turbulence, if any major incidents like the collapse of a bank were to occur.
In a small business, keeping your cash flow healthy is equally important; while you may consider the amount you are owed in invoices to already be ‘yours’, you cannot spend it on servicing any costs or debts until it is in your account.
Adopt a consistent and comprehensive approach to chasing payments, and you can make sure more of ‘your’ money truly becomes available for your company to spend.
This in turn drives down the total level of debt owed to one another by small businesses, and keeps the funds circulating – helping to reboot the economy and, ultimately, to drive the UK back towards its Aaa rating.