RICK SMITH: Managing Director of Forbes Burton, a company rescue and recovery advisor based in Grimsby.
The company has more than 30 years’ experience in helping companies with financial difficulties and insolvency issues. Forbes Burton offers clear, practical advice for directors on how to resolve their problems.
www.forbesburton.com FINANCE
Cash flow: The beast that could halt your business
IT’S often said that there’s little to be gained in business by scaremongering - after all, there are enough stresses day-to-day. But in reality, cash flow is something that we see day in, day out as an issue for small businesses and sole traders alike. There is simply no getting away from the fact that it can be a real dampener on your business if it isn’t swiftly met head-on.
So why does cash flow present itself as a problem? Cash flow stumbling blocks are much more common than people think. The sad reality is that more than half of SMEs, in general, don’t survive longer than five years and poor cash flow is often a solid sign that things might be on the downturn. We always stress the importance of reviewing your financial situation and seeking ways to improve matters.
Many directors simply feel that they don’t have
enough hours in the day and assume that they can catch up with this later. This is often the root cause of cash flow problems – the sooner the issue is caught, the more likely it can be addressed.
Cash flow problems usually occur as a result of those infuriating debts that can’t be recovered. Unfortunately, more businesses than would care to confess
to such, have had to seek help to avoid these unwanted defaulted payments and things can quickly escalate if action isn’t taken.
But fear not, there are ways to combat this. For example, consider having credit control systems in place to collect any money that is owed from customers. That might sound incredibly simple, but there can be no doubt that prioritising the efficiency and effectiveness of this system is important.
This is especially true if your company is in its early stages. You are more susceptible to collapse and are more vulnerable at this juncture. This is often the time when your reputation doesn’t precede you yet, regular jobs and contracts are hard to acquire and funding is critical.
As long as you keep your books up to date the process is usually straightforward. However, this is not always the case.
Many companies simply need to set aside time to administer reminder emails and letters and to pass anything overdue to recovery firms quickly. The sooner this kind of action is taken, the better.
Bookkeeping, although often a loathed task, is often an area where businesses trip up. There’s lots of information out there on the initial start-up costs of various businesses, but little about how many working hours an individual needs to put in for the first months and years of a start-up. These can sometimes verge on the ridiculous.
Many directors simply feel that they don’t have enough hours in
the day and assume that they can catch up with this later. This is often the root cause of cash flow problems – the sooner the issue is caught, the more likely it can be addressed.
It is so important to put a few hours aside to work on your company rather than in your company. As long as you have caught the issue in time, there are things that can be done. If you are experiencing cash flow problems then you are not alone. This especially rings true if businesses are still within the first few years of company incorporation. These first years tend to be a huge learning curve.
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