Why cash flow management is vital for small businesses
Cash flow management forms an essential part of the current business climate, especially when business rates and operational costs continue to rise.
Numerous businesses have also reported difficulty in accessing the funding required to drive growth, meaning they need to carefully manage their available resources.
An emphasis on cash flow is important when considering business failure rates, while economic and political uncertainty have also created tougher trading conditions.
Around 50% of companies set up in London fail to last three years, which is around 4% below the national average.
Despite those figures, the rate of growth that is possible in the capital is among the highest nationwide, suggesting new business owners are prepared to take risks.
UK failure rates are low for the first 12 months of trading – 91% survive – according to Ormsby Street, but only four in ten firms are likely to see out five years.
Watching cash flow therefore forms an essential part of small business operations, especially relating to inflows around revenue, customer churn rates and acquisition costs.
All of these factors will influence the amount of money coming into business accounts but it’s also essential for owners to keep an eye on the bigger picture.
Managing payments – and especially looking at what a business is owed – is vital, while one‐off costs for equipment can also skew figures.
At the same time, smaller businesses are also prone to rapid periods of growth, as well as times when debts mount and sales slow – good management will recognise these periods and will plan accordingly.
If a business does find itself facing financial difficulty there are a wide range of potential solutions available although the key is to act quickly.
Should the situation at hand be more severe, then a business may want to consider administration or alternative insolvency measures at the earliest opportunity.
By Phil Smith