More than 7 in 10 small business owners in the UK say they’ve dealt with cash flow issues within the last 12 months. Your own clients and suppliers are probably in the same boat. Let’s dive into what causes your incomings and outgoings to fall out of sync – and explore what you can do when things go pear shaped.
1. Late customer payments
Late payments are the thorn in the side of every SME. The UK government says late payments cost small businesses around £22,000 every year and 56 million hours of lost productivity. Some businesses face months of delays, especially when dealing with larger firms. Is it any wonder you’re struggling? The problem is so severe that a major support package was announced in September, along with plans to introduce new legislation to crack down on late payments.
According to Business Secretary Jonathan Reynolds, “Late payments are simply unacceptable, and this government is determined to level the playing field for small business. When the cashflow runs dry, small firms go under which is why we need to hold larger business to account with their payment practices and foster an environment that supports growth and jobs.”
How to deal with it:
Discuss your payment terms upfront and make the payment due date clear on all invoices. If you use accounting software like Xero, you can automate payment reminder notices to go out at set intervals.
2. Surging overheads
High inflation and the cost of living crisis have made the last couple of years deeply challenging for SMEs and households alike. The cost of everything has increased, from fuel to get to the office, to the cost of heating and lighting your place of work. If you’re renting a commercial property, chances are that’s gone up as well.
How to deal with it:
Dealing with increased overheads is a headache with no easy remedy. Many SMEs are forced to offset those costs elsewhere. Putting up customer costs is usually a last resort in case they then decide to go elsewhere. It’s a lose-lose scenario and can easily see your bank account falling into the red.
3. Large amounts of inventory
If you’ve invested in lots of stock, you’ll be left to foot the bill for inventory that’s going nowhere. That can have a huge impact on cash flow as you wait for those items to leave your warehouse and free up your cash flow.
How to deal with it:
This is a tricky one to juggle as you may need to invest in inventory up front to get a better rate from your supplier or have goods in stock ready for a busy period (such as Christmas shopping season or the end of the tax year). Having a sales forecast and reviewing previous sales figures can help you to judge exactly how much you should order and when.
4. Sales slumps
Seasonal peaks and troughs are common in many industries – retail is a prime example – but slowdowns are becoming more pronounced across the board. That’s due in no small part to the cost of living crisis, rising interest rates and persistent inflation. A slump can hit at any time and send your careful planning out the window. When customers are forced to tighten their belts, your cash flow will inevitably be impacted. The effects can be worse when a slowdown hits unexpectedly.
How to deal with it:
There’s very little you can do when declining sales come out of the blue, but an emergency fund can give you some peace of mind and help you keep your head above water until trading conditions improve.
6. Not managing expenditure
When did you last sit down and look at where your business was spending money? If you’re anything like most SME owners, the answer is probably ‘not recently’.
Research confirms that 68% of business owners haven’t reviewed their outgoings for a significant period of time. As a result, most are spending around £4000 per year more than they need to.
How to deal with it:
Time is money quite literally in this case. Making time to review how much you’re spending each month could save you thousands of pounds per year. Get into the habit of shopping around for a better deal on essentials like insurance, business broadband, mobile phone contracts and energy supplier. Staying with the same service providers is easier, but it often comes at a higher price.
Solving your cashflow challenges
Dealing with cashflow issues can be a monumental stressor. Sleepless nights and a persistent headache come with the territory.
Exploring alternative funding sources can give you peace of mind (and a much needed influx of cash) if your bank isn’t ready to give you the green light and a cash advance. There are more options out there than you might think, including crowdfunding, angel investment, micro loans, asset finance and peer-to-peer lending.
The downside is, they can also take time and come with strings attached – such as having to give up a stake in your business. If that isn’t for you, our loans help small businesses to take back control. You can use the cash for whatever you want, the application process is straightforward, credit history doesn’t matter and you could have the funds in your bank in as little as five working days.
Give us a call to find out more.
