Should UK SMEs be more frugal?
While the 2008 banking crisis threw many businesses into financial turmoil, economic recovery has been accompanied by a British SME revolution. New outfits are popping up at historic rates, and 'start-ups' are growing six times faster than other UK businesses.
The above statistic paints a rosy picture, but research by commercial insurer RSA (Royal and Sun Alliance) suggests that approximately half of all UK start-ups fail during their first five-year business cycle. Likewise, a recent survey conducted by the ICAEW (Institute of Chartered Accountants in England and Wales) indicates that 20% of entrepreneurs wish they had managed their cash flows more effectively during the early years of their businesses.
Cash is key
Raising launch funds is often seen the biggest obstacle to establishing a successful start-up, but this is really only the first hurdle: according to the ICAEW, 70% of entrepreneurs feel that they underestimated the challenges of running their own firm. After all, a successful launch must be followed by sustainable growth, and observers are now suggesting that early-stage businesses should be more frugal.
If finances aren't managed effectively from the word go, rapid cash burn can leave companies with mounting debts and low liquidity before getting a foot in the door. Overspending on areas such as marketing, for example, can quickly erode a fledgling firm's resources and divert cash that may later be needed to pay suppliers.
No reward without risk
It's important to strike a balance between financial prudence and standing still. While there's no doubt that it can pay to be frugal, there are other ways to improve business failure rates.
Additional tax breaks from Westminster could bolster growing firms, and many SMEs could better their financial situations by eliminating bad debts. Enforcement Agents such as Dukes Bailiffs can help small businesses to achieve financial stability by collecting unpaid sums ethically and efficiently; though rapid expenditure is sometimes inevitable, predictable cash flows make rough patches much easier to traverse.
Do you work for an SME that is burning through resources too quickly? If so, contact Dukes Bailiffs to discuss how sensitive debt collection could secure your cash flows.
