V4B Business Finance

Financial challenges faced by businesses and how to avoid them

Many UK SMEs face the same financial challenges, with the effects of Brexit and uncertainty about the economy, financial obstacles are at the forefront for many businesses.

A number of these challenges can be avoided, we look at the top five financial problems highlighted by small businesses and address ways to overcome the issues.

  1. Cash flow

Cash flow is one of the largest concerns for businesses with many citing it as the number one priority. Small margins can squeeze cash resources and a lack of capital can prevent expansion, growth and payments.

How to avoid cash flow issues:

  • Audit business accounts and create a cash flow forecast
  • Examine ways to improve profit margins
  • Negotiate with creditors
  • Arrange a short-term business loan – asset-based loans and invoice finance can ease the pressure 
  1. Money management

Sounds simple enough but many small businesses begin with poor money management practices. Ensuring accounts are accurate and up-to-date is a good first step.

How to avoid poor money management:

  • Have procedures in place to deal with debt recovery
  • Dedicate time to complete invoicing or outsource the process
  • Complete regular audits
  • Review costs and keep track of all business expenses 
  1. Acquiring finance

Small businesses often rely on alternative finance for business funding after failing to acquire a traditional bank loan. Whether it’s funds to aid growth, invest in assets or ease cash flow, financing the business can be a challenge.

How to overcome finance issues:

  • Many try a bank loan first, but the process can be lengthy, and some banks are wary of lending to businesses
  • Alternative finance is a great option, fast decision times, competitive rates and advisors experienced in dealing with SMEs
  • Self-finance options include securing finance using a mortgage as security or borrow against a pension pot
  • Research finance options and weigh up the pros and cons 
  1. Late payments

Late invoice payments can cause a large amount of distress and can hit smaller companies hard. Despite many invoices stating a payment schedule of 30 days, many remain unpaid after 72 days.

How to avoid late payments:

  • Offer an early payment scheme or incentive for customers with discounts for paying early
  • Invoice promptly and ensure all invoices are correct
  • Know your customer and ensure they’re credit worthy
  • Have a set of T&Cs in writing explaining payment terms
  1. Slow economic growth

Continuing business growth in a slow economy presents its own challenges. However, there are ways to ensure business continues to prosper despite an economic slowdown.

How to continue growth in a slow economy:

  • Monitor cash flow on a regular basis
  • Maintain relationships with customers
  • Stick to the business plan
  • Be as prepared as possible and keep employees informed
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