Are the UK’s small businesses financially savvy enough?
Only one in a hundred Brits is truly financially savvy, according to new figures from the Office for National Statistics, and this is impacting on business performance.
The Wealth and Assets survey focused on how people make ends meet, how they plan ahead, how they manage day to day spending and on how their pick economic products.
Low scores were noted for planning ahead and for managing large payment outlays, both of which are key factors which influence the chances of long term business success.
Many of Britain’s small businesses experience issues that are similar to those of the consumers questioned, with poor money management and financial planning the main problems.
While these issues can be overcome, many firms are placing themselves under financial threat, as their cash flows provide them with little room to manoeuvre.
Having additional funds to drive growth and prosperity is key and it is possible for businesses to expand rapidly provided that they have the necessary financial foundations in place.
Such an approach should provide protection against all but the most serious issues that develop, while business owners can then look to use their assets and finance more effectively.
This should reduce the likelihood of corporate insolvency and should help them leverage assets and debts to boost their overall financial position.
Planning is vital to the process and it is important to not be too optimistic when forecasting cash flow – although this was noted as a regular occurrence among expanding smaller businesses.
Such planning becomes even more important for firms who may have plenty of outstanding invoices and who are owed large sums by other companies.
Any delays to these payments could cause cash flow problems, so a certain level of spare finance should be kept aside to cover any delays.
Factoring in any potential outlays and business costs should provide a better understanding of how a business is performing, especially if further spending might be required.
For instance, growth might need to be supplemented by the purchasing of new equipment, the hiring of new staff or by increasing the size of orders – all of which come at a cost.
Recognising these expenses and planning ahead should increase a firm’s chances of success, especially as current economic conditions are supportive of growth.
By Phil Smith