How to use your cashflow to fuel your growth » SMEInsider

How to use your cashflow to fuel your growth

Cashflow is the lifeblood of any company, but for SMEs it really is make or break. Managed badly, it can drive a promising venture into the ground overnight; managed well, it can help you grow your business at a rapid rate.

This week, we’ll focus on how to maintain a healthy balance sheet, manage relationships with customers and suppliers, and make sure that your business has constant access to the money it needs – for the day-to-day essentials, and to fulfill the bigger vision.

As we covered in detail here, maintaining your cashflow means looking ahead to spot problems before they have a chance to damage the company, and making sure you’re always preparing for the worse. But it’s not all doom and gloom: an intricate knowledge of your cashflow means you can analyse patterns to help you understand what isn’t working in your business, how to change it and, crucially, how to seize opportunities for growth. Exciting developments in financial technology are giving rise to a wave of new tools for small business owners to visualise and quickly respond to these opportunities; we’ll cover some of these in detail later in the week.

We’ll also take a critical look at the options available for those businesses that are struggling to get their suppliers to either pay them on time, or within a reasonable time frame. Figures released last month suggest that SME cashflow bounced back to pre-crash levels in 2014, but many smaller businesses continue to battle with onerous payment terms placed on them by larger firms and institutions.

Despite EU and UK government rules designed to hold organisations to 30 or 60 day terms, in practice, small businesses often resort to measures that see them lose money on their invoices rather than wait it out – meaning that many of the proposed “solutions” actually perpetuate the problem, by rewarding large-scale customers for dragging their heels. As political parties prepare to tackle the issue, it’s essential that SMEs aren’t left with a choice between unfeasible lead times and slashing profits, just to get paid.

As always, we’d love to hear your thoughts. You can join the conversation by tweeting us at @SMEInsider with the hashtag #GrowCashflow.

And remember, when it comes to cash: turnover is vanity, profit is sanity!

  • The SME is the life blood of industry but, the sad thing about it, is that, the banks fail to recognise this and are “more often than not,” completely unwilling to offer financial assistance to help the SME to grow as a consequence of their lending criteria and place the blame of refusal on a term that is very often used by them as a “get out of lending clause” the term is “responsible lending”.

    This term is the catalyst of the banking industry’s unwillingness to show support for the SME, the SME is then faced with many upheavals to either overcome the chronic situation or slowly become insolvent.

    For many the term is really irresponsible decision making; as there are many SME companies out there that have a viable business but are restricted to prosper as a consequence of irresponsible banking attitudes towards the SME.

    Banks are only interested in organisations when the organisation is self sufficient but, by that time, who needs the bank? The banks can indeed create success where success is due but their current lending stance needs much reform if the country want to see growth and prosperity.

  • Richard Hill, Close Brothers

    Established well managed and profitable businesses can as easily as new start and high growth companies fall into the cash flow trap. The big hard won order or the long courted “blue chip” customer celebrated today often cursed tomorrow.
    All businesses manage their cash by timing payments against receipts and Corporates are no different. Everyone wants to be paid “quicker” but in reality a business world without credit terms only plays into the hands of the big cash rich corporates. Imagine a SME World where everything was paid on delivery – how would you grow without a huge cash reserve? Suppliers, employees, services, deliveries and HMRC all paid before you deliver to your customer and then get paid?
    There are real solutions out there to the perpetual cash flow headache but as the article suggests if you are chasing marginal turnover these solutions whilst improving cash availability in the short term will not solve the underlying business issue and will often magnify them. This said for growing, seasonal or diversifying businesses where cash flow is the genuine issue – solutions are at hand.
    Traditional bank overdrafts are increasingly more difficult to secure however invoice finance and Asset Based Lending (ABL) offerings are now readily available, sophisticated, flexible and bespoke. Thousands upon thousands of SME’s thrive using this flexible finance.