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Cash-is-king

Cash is King in the survival of small businesses

Authored by Phil Meekin

Phil Meekin

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Approximate read time: 3 minutes

Ahh, a phrase that rings true in the lives of many, in particular, directors of small and medium-sized businesses. In light of recent political events, combined with bleak insolvency statistics, one would not be blamed for perceiving the future of small business in the UK as a troubling one. After all, one in five small businesses close their doors within 12 months of initially opening them, right?

However, despite these statistics, the importance and influence of small and medium-sized enterprises (SMEs) in the United Kingdom should not be taken for granted.

SMEs account for 99.9% of business population

At the beginning of 2019, there were 5.9 million small and medium-sized enterprises in the UK. This makes up 99.9% of the business population, and furthermore, 60% of total employment!

Collective turnover of SMEs was estimated at £2.2 trillion. That’s 52% of the combined turnover of the UK private sector, according to statistics issued by the Department for Business Innovation and Skills.

Taking these statistics into account, it is indisputable that the growth of our economy relies heavily on these businesses. They continue to contribute in a healthy and optimistic fashion to national prosperity, despite the challenges.

So, why do so many SMEs fail?

Each business which has to cease trading will have its own reasons, but when push comes to shove, the crunch of most SMEs boils down to a lack of cash.

Some will have been unfortunate, hit by unfordseen circumstances – recent economic uncertainty in the current political climate being one example. Unfortunately, though, many of these business failures can be traced back to one contributing factor: poor financial management.

Poor cash flow is all too often a key indicator of this, due to premature-expansion, overstocking, and over-reliance on peaks in business.

I’ve seen directors pop champagne bottles over a ‘big contract’ which they thought would cement the future of their business. All too often, reliance and over-confidence in such contracts later lead to demise, due to businesses being unable to meet their financial or practical demands.

Can small business failure be prevented?

 

As damaging as it can be, the attitude above is somewhat understandable, considering the past abundance of funding for SMEs. These days, though, despite a few floggings from the government, accessing money through the banks can be a trying task, with bank managers often finding their hands tied.

As disheartening as this can be – there are still options available! Asset-based lending (ABL) and private investment can be particularly beneficial to businesses looking to expand, when the time is right.

For a business which is in a state of poor cash flow, the worst option is to do nothing. Taking independent, professional advice can open you up to more options. This can help to preserve jobs, and guide your business in the right direction.

In short, there is nothing more important to preventing the failure of a business than a well-drawn-out financial plan. Preparing for all possible outcomes, and treating expansion with caution, can help to keep cash-flow healthy, and the future of your business more secure.

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