There’s a unique problem facing Britain’s SMEs right now. It might have you scratching your head and wondering just what’s happening. And that’s the fact that so many seemingly successful businesses, which for all intents and purposes are doing well on paper, are running out of cash.
Retailers, service providers, estate agents, HR companies, manufacturers, and hospitality businesses. They’re generating revenue and making a profit, so why are they running out of money?
This could well be the situation you find yourself in right now. And chances are, it’s leaving you stumped. You’re busy, and your sales figures look healthy. So, why are you feeling the pinch? Why is your bank balance closer to red than green? And why are you struggling to pay your VAT bill or make payroll?
The hidden drain that’s pushing successful SMEs to the brink
As a founder, you pride yourself on having a good handle on how your business is doing. If you’re smashing your sales targets, winning new business and keeping existing clients happy, it’s natural to think you shouldn’t have any problems keeping the lights on and keeping HMRC from the door. But often, that’s not the case. Every month, the squeeze feels a bit tighter. It’s that much more of a stretch to pay suppliers on time. And your PAYE bill becomes a monthly burden rather than a standard practice.
This is a common scenario, and we see it day in, day out.
The problem isn’t directly related to your business. It comes down to timing. Even successful businesses find themselves floundering when the cash is flowing out of the door at a greater speed than it’s coming in. And that’s because profit is money you have on paper. Cash flow is what’s actually in your bank. Often, there’ll be an imbalance between the two.
Identifying the source of the squeeze
You’re busy, but short on cash. Usually, cash flow problems can be traced back to a few standard culprits:
Late payments
According to official UK government figures, late payments impact over 1.5 million businesses each year. It’s estimated that there’s an average of £26 million in overdue payments across the country at any given time. For the average small business, that looks like £17,000 owed. Is it any wonder that you’re constantly firefighting despite being busy? You’ll already have paid upfront for items like materials and labour, so having clients stretch their payment terms over the pre-agreed timeframe can leave you seriously short.
Upfront expenditure
Running a business isn’t something you can do effectively on a shoestring. You need to pay for premises, software, people, materials and equipment upfront. Spending before you’re earning can quickly create an imbalance and means you’re left juggling debts like VAT and suppliers without having anything yet to show for your upfront outlay. If you don’t have enough of a buffer built into your cash flow to cover upfront costs, covering day-to-day expenses can be impossible.
A tax bill hits at the wrong time
We all know when our VAT bill and other tax liabilities are due. The dates are standard and don’t come as a surprise. But they can come at exactly the wrong moment for your cash flow and leave you in a bigger financial squeeze. Especially if you’re already facing a cash flow gap due to late payments and upfront expenditure. Getting behind on VAT and PAYE can lead to further issues, including late payment penalties and increased amounts owed.
You’re growing quickly
Running a growing business is rewarding and exhilarating. The satisfaction that comes from securing a large new project, smashing your sales targets or expanding into another region is a huge adrenaline booster. But it could also be the source of your stress when it comes to paying staff, suppliers, and HMRC on time.
Growing a business takes money. Taking on bigger jobs might mean more equipment, more people, or more inventory. And while it’s all well and good on paper, with orders coming in to cover it, we’ve already seen the disconnect that’s all too common between a sale and cash in the bank.
This is the moment where you may realise that you’re successful but stuck in the vice-like grip of cashflow pressure. It’s frustrating because you know you’re in demand and you have a decent pipeline, but your money is tied up in late invoices and upfront payments.
Waiting can exacerbate your cash flow pressures
There’s a temptation to ride things out and wait until those late payments come in to get everything cleared off. You might feel hesitant to borrow precisely because you have that cash coming down the pipeline and your business is thriving (on paper).
This can be a perilous tightrope, because waiting until you hit a real crisis limits your ability to act rationally and calmly. It puts you under time and cash pressure, which means fewer doors will be open to you.
Hanging on and waiting for those promised late payments to hit your bank could also mean that you miss opportunities in the meantime. Dragging you into a cycle that can be hard to escape from.
Plan smart and stay ahead
Considering a business loan to help your company escape its cash flow squeeze might sound counterintuitive when your profit and loss is healthy in the green. In reality, it’s a smart play that gives you a safety net (think of it as a plan B) and lets you continue operating as normal if you face a shortfall.
It’s especially useful if you’re juggling supplier bills, struggling to pay the tax man, having to delay payments or pass up opportunities to grow because you don’t have the funds to finance the leap.
The benefits of having extra cash to hand shouldn’t be underestimated. It means you can protect your working capital and can act quickly if an opportunity arises before a major project is due to pay out. Cash in the bank also gives you flexibility and means you can make decisions with a strategic mindset rather than a stressed one.
If you’re feeling the squeeze, we can help right now. We aren’t suit-and-tie high street lenders. We understand how business really works and the importance of fast funding. No credit checks. No business plans. Just speedy support to help you take your next step. Apply now or contact us to find out more.
