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.
- 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
- 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
- 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
- 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
- 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
