How to manage your business' cash flow effectively
An integral part of running a business is ensuring effective cash flow. Whilst initial profit is often perceived as a measurement of success, this is only the first hurdle. In fact, 8 out of 10 companies fail within the first 18 months of trading.
British SMEs hesitant to take on loans
Small enterprises therefore have to be able to rely on a continued cash flow – not just a first influx of revenue that soon trickles off. With stability being so key for companies, it doesn't come as a surprise that SMEs are presently ‘reluctant’ to borrow money, despite the benefits to accelerating growth.
According to BDRC Continental's finance monitor for Q2 2017, ‘the majority of SMEs do not trust traditional lenders’ to support their businesses. Although 45% of them state that they have plans to expand and build their companies in the coming year, an estimated 80% are not applying for new finance. Many cite Brexit-related uncertainty as the main reason, as they can't guarantee how their future cash flow will look.
Effectively managing cash flows
For firms who do want to take advantage of loans to help boost their growth, it's important to have robust plans in place to ensure stable flows of capital. The first step is to work out unavoidable expenses, such as paying wages, purchasing stock and supplies and meeting personal financial requirements.
Make sure you’re up-to-date with your financial information. Investing in software packages to provide you with an accurate report of your finances will allow you to foresee cash shortages as well as to stay on top of debtors and payments.
It's also critical to design not just preventative, forward-looking processes but also protocols for when things don't work, such as establishing an escalation process for following up on late payments. This should be a key concern, as debtors falling behind schedule are the cause of half of early small business failures.
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