FINANCE
BY EDDI TAYLOR , PARTNER , AZETS
Cash is King : Protecting and Strengthening Cashflow
WITH SKY-HIGH LEVELS OF INFLATION , RISING RUNNING COSTS AND A DEEPENING ENERGY CRISIS , BUSINESSES OF ALL SIZES AND FROM ALL SECTORS ARE FEELING THE PINCH .
Figures from the Office for National Statistics show that 40 % of the UK ’ s small businesses have less than three months ’ worth of cash left to support operations .
What can SME business owners do to protect and strengthen cashflow ?
Cashflow management and forecasting
It ’ s crucial to ensure there ’ s no misalignment between cashflow and profit . The business may be profitable , but is there enough cash at the end of the month to pay wages and suppliers ?
A 90-day cashflow forecast is an easy way to ensure the funds are in place . The more the cashflow cycle is understood , the more options available - such as , securing extended credit terms for suppliers to ensure these are closely aligned to the customer payment terms , or looking at financing options , including invoice finance , to get an early advance on sales .
There may be an option for an early settlement discount which gets cash quickly back into the business .
Essentially , stop , plan , and forecast forward . This allows business owners to know how much funding is required and then digest the options available to find the best route . A business may end up being self-funding or at the opposite extreme it could be in the form of external equity . In between these two ends of the scale are mainstream funding , alternative funding or even supplier funding .
Payment terms
Chasing up overdue payments isn ’ t always a priority , however , there ’ s a massive domino effect and growth can subsequently be curtailed . It may be that payment terms from customers is 60 days , while suppliers are paid in 30 days . This can result in a lag between outgoings and incomings , hence a funding gap or working capital deficit .
Review business model
Business models should be constantly and regularly reviewed .
Keep a clear , concise business model which highlights ambitions to work towards and acts as a to-do list – making it easier to tick off and adapt if required .
As many businesses will attest to right now , fundamental changes to the business and operations serve as a trigger point to review the current business model and how sustainable this is for the future . Regular checks of a business model also lessen the dangers of being purely reactive and changing business models haphazardly in firefighting mode .
Understand the impact of credit scores
Credit ratings influence the payment terms businesses can set for suppliers and customers . It ’ s important that due diligence is also done on potential customers to ensure they are definitely in a position to pay for the use of goods or services . If a customer fails to pay , there will be a substantial cashflow knock-on impact .
Additional financial support
There is support available which sometimes goes under the radar , including accelerated capital allowances and R & D tax credits . Where applicable , these attractive tax incentives can help with a much-needed cash injection .
Typically , businesses also tend to stick to their main bank for funding or finance help rather than shopping around to see what ’ s available . The good news is there is a wide range of finance providers available to SMEs . For example , there are the newer digital banking providers , independent finance companies , FinTechs , angel investors and private equity funds .
We are here to help
If you have questions or would like to discuss the options available to you , please get in touch .
Eddi Taylor Partner Azets
T : 01227 454861 E : Eddi . Taylor @ azets . co . uk
Local offices : Ashford : 01233 629 255 / Canterbury : 01227 454 861 Maidstone : 01622 690 666 / Orpington : 01689 827 505 Sandwich : 01304 249 997
Accounting | Tax | Audit | Advisory | Technology www . azets . co . uk
150