Recent research from the Chartered Institute of Credit Management (CICM) has revealed that 82 per cent of SMEs have faced cash flow difficulties.
For many small businesses, periods of high activity can be followed by quieter months that place pressure on finances.
While a business may look profitable on paper, poor cash flow management can quickly cause problems that could even lead to insolvency.
Why are SMEs continuing to struggle?
Cash flow determines whether your business can pay suppliers, meet payroll, cover tax liabilities and face unexpected costs.
When cash flow is healthy, businesses have the flexibility to invest and take advantage of new opportunities to grow.
However, when it is under strain, business owners may rely on short-term borrowing or delay payments, which can be a difficult cycle to break.
Late payments are one of the biggest culprits for SMEs struggling and it can just take one or two delayed invoices to stretch cash reserves.
Growing businesses can feel this even more as expansion usually means hiring staff or buying equipment long before income catches up.
How to prepare your cash flow?
Preparation is essential to avoiding a cash flow crisis. Invoices should be issued promptly, clear payment terms should be set and a consistent debt collection process should be put in place.
Many businesses can benefit from accounting software that automates invoices and reminders, while offering alternate payment methods can make it easier for customers to pay on time.
Regular cash flow forecasting can help you spot any potential shortfalls and budget spending for the quieter months.
Reviewing costs and cutting non-essential expenses during slower periods can also ease pressure on cash reserves.
If you are really struggling, external finance such as invoice finance or an overdraft facility can help bridge short-term gaps, especially when customers have long payment terms.
Prepare your finances now
Cash flow is one of the toughest parts of running a business, but early financial advice can help you set up more resilient systems and make informed decisions.
Our expert team can help strengthen your cash flow and build a cash flow reserve for when your business faces unexpected expenses or downturn.
For expert advice on keeping your cash flow healthy, contact our team today.
