Cash flow conundrum

John Antunes
Director of SME and Channel, SAP UK and Ireland
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Without a doubt, cash flow is a core element of any business. But for a small business, counting every penny whilst striving to gain traction in the UK market, whilst having a faultless cash flow system in place, is crucial. Cash flow is one of the hardest aspects of business, particularly during an era of economic uncertainty.  So what are business doing to alleviate this pressure?

Just last week the BDRC Finance Monitor was released, detailing the borrowing process for SMEs and highlighting the different elements of accessing finance. I was particularly interested to read that whilst 59 per cent of loans were granted, 33 per cent of loan applicants ended up with no loan at all - some one per cent of all SMEs. OK, I know one per cent doesn’t sound like an awful lot but when we are talking about five million British businesses, it’s a significant amount. More so when, as an economy, we are relying so heavily upon these businesses having the funding they need to be innovative and grow.

With access to finance proving tough due to SMEs being considered high risk – not having the history of being a successful business – it’s no surprise to see that the likes of Wonga have entered the market – something which I have previously commented on. Wonga has created a new kind of competition to the larger banks, offering a quick fix with immediate access to money; filling the void for the many small businesses who struggle to access the funds they need from alternative sources. Hopefully this, coupled with Government support through the likes of the Start-up Loans and other schemes, will lead to more entrepreneurs and SMEs gaining access to the valuable funding they need. Additionally, The British Chambers of Commerce last week reduced its forecast for economic growth this year, from 0.6% to 0.1% confirming the need for the Government to encourage start-ups to bring growth to the UK, helping us through - and out of - the recession.

To me, making a decision about finance is largely affected by time. Any decision with regards to cash flow requires serious consideration and the temptation to rush into arranging a loan without mapping out exactly when and how it will be paid back, could prove too much for some SMEs. Although confidence amongst the sector is reported to remain at an optimistic level, an amount of conservativeness is required if you are to protect your business. Obtaining advice and having a conversation with someone who can get to know your business, and the risks associated with it is likely to lead to a better, more informed decision when selecting financial support.

SMEs, by their very nature, are agile in their ability to adapt to changing economic conditions. I would always advise SMEs to think carefully about financial requirements and any existing loans before adding another. Businesses should consider all the options to finance their business – e.g. negotiate extended credit terms with suppliers or move to a ‘pay as you go’ model offered by other suppliers. Business owners themselves have to take the initiative to access funding in the most appropriate ways to become as competitive as possible – seeking support where necessary. It’s all about making calculated, informed decisions that will support business objectives long-term and support business growth.


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