Are SMEs taking risks with their financial management?

Poor money management could be placing many businesses under unnecessary financial pressure, according to new figures from Santander.


One in four firms relied on an overdraft facility during the past 12 months according to the bank’s Corporate and Commercial department.


More than one in ten SME decision makers revealed that they used personal credit cards or finance facilities to fund firms too, despite the risks that are attached with doing so.


The situation was particularly apparent in the North East as the number of firms using personal finance is double the national average.


The study also revealed that 8% of firms admitted to never reviewing their financial requirements, meaning they had no knowledge of financial stability or if funds were available for new projects.


This apparent lack of awareness is dangerous for firms as it could mean they are closer to facing insolvency or receivership than they might realise.


Some 43% of firms admitted to having cash flow concerns about the next 12 months too, while a quarter of firms listed late payments of invoices as a major reason for their anxiety.


Nearly two fifths of firms in London had cash flow issues – the highest proportion of any location in the UK – with high operating costs in the capital thought to be the main reason for this.


Firms with financial concerns should contact insolvency practitioners for advice as there might be solutions that can aid their situation.


Santander suggest that the results of the survey are worrying and points to the need for better cash flow management.


Invoice finance can help to cover the costs of unpaid invoices which can make a big difference to small firms who operate on tight budgets.


It should ensure that they can pay suppliers and improve their financial position to one that is more supportive of growth.


Small businesses should focus on their finances more than they currently do as it will ultimately benefit them in the long term – especially if adopting such an approach helps to boost operating efficiency.


By Phil Smith


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