Cash flow problems are the single biggest problem for businesses, both new and old alike and it is a problem that has been compounded by the current Coronavirus situation.
In the world of business, cash is king and without it, companies of any size struggle to keep their doors open.
Maintaining healthy cash flow is a hugely important aspect of running a successful business and yet it is something so many businesses find difficult. That is certainly the case for start ups and SMEs who don’t always have massive cash reserves to support them should any financial obstacles suddenly arise.
Most cash flow problems can actually be prevented with some forward thinking, preparation and the right strategy in place. Unfortunately for businesses all over the world, there was no forewarning with the COVID-19 crisis, so companies everywhere were unable to prepare. But a lack of preparation does not have to mean the end of your business....
Understanding exactly how cash flow problems appear is the first step your business can take in predicting any serious cash flow issues. By predicting the problem in advance, your business can take the precautionary measures required to avoid an even worse outcome in the long run.
Failing To See The Bigger Picture
We understand that coming to terms with the impact of Coronavirus on your business is daunting right now, but failing to see what problems lie ahead could prove to be a huge issue further down the line. If your business is now stuck in a rut after a fall in demand or unpaid invoices, now could be the right time to access additional funding. There are various government schemes, including the Coronavirus Business Interruption Loan Scheme (CBILS) and cash grants available. But in order to access this additional funding, your SME will need to demonstrate that it fully understands its financial position both now and in future.
The Solution: Cash Flow Forecasting
Regular – and most importantly, accurate cash flow forecasting will enable your business to make sound financial judgements to protect the future of your SME. Understanding how to prepare a cash flow forecast is a crucial skill any business owner should have in their arsenal and with such a document, you also stand a far better chance at accessing additional funding for your company. If your company has chosen to defer payments such as VAT and rent, lenders will expect you to address these liabilities in your forecast.
Furthermore, a business continuity plan should be something your business is either writing or reviewing right now. It will help guide your company through the tumultuous times that lie ahead.
Long Payment Terms and Late Invoices
This is perhaps the biggest problem businesses are facing right now and that is especially the case with SMEs who don’t have the financial backing needed to balance out any financial issues caused by late payments. In fact, late payments are a problem for almost a third of SMEs.
Sadly, payments have become a waiting game for many companies and this problem causes a vicious cycle that continues to affect businesses on a consistent basis. Cash flow problems arising from late invoices is not a new concept, but the pandemic has added oil to the fire and made the problem devastatingly worse.
The Solution: Invoice Finance
This funding product is one of the most popular alternative finance solutions out there and it is utilised by thousands of businesses year on year.
Rather than chasing late payments or trying to operate efficiently during this crisis with low funds due to 60-day payment terms, apply for our Invoice Finance loan today. Your debtor book is likely your biggest company asset, so use it to help keep your business's head above water during these financially challenging times.
With the Nucleus Invoice Finance facility, SMEs can borrow between £100k and £50m and to guide you through the entire process during these overwhelmingly stressful times, we provide a dedicated relationship manager.
Overhead Expenses That Are Way Too High
For SMEs hoping to achieve growth, getting to grips with overheads should be at the top of any priority list. But SMEs hoping to stay afloat, getting to grips with overheads is necessary for survival. A failure to reduce overhead expenses where possible will likely stunt any real chance of expansion and it could potentially be a leading factor in your business failing at some point.
If you are not all too familiar with overheads, a simple way to think about it is any cost involved with running your business that is not linked directly to selling your services or products.
Solution: An Audit Is Well Overdue
Reducing overhead costs can be a little tricky, especially for those who are not seasoned pros at controlling large budgets. The first place to start is by auditing every single expense in your business to identify any unnecessary costs and then refine that list as much as possible.
If the rent for your warehouse is eating into your profit, consider downsizing if possible for the next six to eight months or moving to a cheaper location.
Inadequate Gross Margins
When it comes to the overarching financials involved in running a business, it is ultimately a very simple equation. Inflows of the business need to exceed outflows, otherwise a cash flow crisis will occur and your company may well start to struggle financially.
For SMEs and start ups operating in a highly competitive market, having the right pricing strategy in place is an essential your business simply cannot afford to get wrong. The mistake many new and smaller businesses make is trying to drop their prices lower than everyone else – often, without consulting the all-inclusive cost of providing the product or service.
The Solution: A Well-Researched Pricing Strategy
The way to solve inadequate gross margins is to fine tune your pricing strategy so that it reflects the true cost of delivering the products or services your SME provides. Whilst competitor analysis is important when establishing a reasonable price, it is important to remember that each business will have their own prices negotiated with suppliers and sometimes, your competitors manage to land better deals than you do. You may have found that your current suppliers are unable to meet demand due to supply chain issues and if that is the case, now is the time to negotiate deals that work alongside your well thought out pricing strategy.
Once you have worked out the all-inclusive cost, you will then have exactly what you need to better price your products and services. For some items, that might mean raising prices to further diminish weak margins that are impacting on the overall profit of your company. For others, it might mean removing them from your offering as a business altogether. Before changing your prices, you need to first establish that there is still demand for your services or products amid the pandemic and that secondly, your pricing is close to what your competitors are charging. Getting your prices right is crucial for the survival of your business during these financially challenging times.
Maintaining healthy cash flow should be at the forefront of every business owner’s mind during the COVID-19 pandemic and if you predict problems for the financial state of your SME, exploring your funding options is key.
Our Cash Flow Finance is a hassle-free, unsecured commercial loan of up to £200k, with terms ranging between 3 months and 5 years. For businesses needing a cash flow boost to help weather the stormy months ahead, this provides the perfect funding solution.
For more SME advice regarding the Coronavirus situation, take a look at the additional resources on our Coronavirus Hub.
1 April, 2020