Cash flow worries can be a major headache for startups & SMEs

Maintaining positive cash flow can be really worrying for startups and fast-expanding SMEs, often limiting potential business growth or purchases. Most smaller organisations rely on operational cash flow for their survival and growth, particularly as sourcing loans can be difficult and offers difficult to manage high interest rates.

One of the major hurdles impacting on startup and SME growth is constant uncertainty regarding customer contracts. And this often feeds into problems with cash flow. Late payments are also a big problem for startups and SMEs, affecting cash flow in a negative manner and also having a knock-on impact on the dates suppliers can be paid.

High costs of borrowing

Studies show that almost half of small business owners find it impossible or very difficult to access working capital funding. Very often application processes are inflexible and take far too much time, and interest rates can be exorbitant. Some business owners do manage to access finance with an APR of less than 8%, however, this is not the norm in the UK. On the whole SMEs in Europe and the United States fare much better when it comes to accessing working capital at low interest rates. This makes it even more imperative for startups and SMEs to have the ability to utilise operational cash flow for funding expansion and daily costs.

Small business planning tends to be geared towards the longer term

It does seem to be the case that most small businesses in the UK focus mainly on longer-term business issues, rather than short-term fixes. Around 25% of business owners state they would use additional cash to invest in new technologies, while around 24% would buy new equipment or additional inventory.

It’s slightly concerning that almost 15% of business owners would use loan finance to fund existing outgoings, like payroll or supplier invoices, however. Although up to 16% of small business owners state they would use additional funding to expand operations, either within the UK or by exporting to overseas markets.

All longer-term planning like this doesn’t just benefit the company and increase growth, but it also feeds into the success of the overarching UK economy.

Cash flow worries – where to find out more

Find out about our alternative forms of financing, including cash flow solutions, on our Alternative Finance page. Or please get in touch to discuss with us how we can help you avoid cash flow worries.

Image: Calculating Taxes Up And Down by kenteegardin licensed under Creative Commons 4.0