The Christmas period can bring a welcome increase in sales and exciting growth opportunities, but a busy trading season does not guarantee financial stability.
Without effective cash flow management, even profitable businesses can find their growth limited and day-to-day operations under pressure.
Cash flow is important to the success of every small business and determines whether you can pay suppliers, meet payroll, invest in growth and respond to unexpected challenges year-round.
Cash flow management is crucial for businesses that want to sustain growth and achieve long-term success.
Why is cash flow important for growth?
Secure cash flow can allow a business to meet its financial obligations, including ongoing costs such as rent, wages, utilities and tax liabilities.
When cash flow is positive, it can provide businesses with confidence and flexibility to invest in growth opportunities.
However, when cash flow is under pressure, growth plans can quickly stall and businesses may be forced to rely on short-term borrowing or delay payments.
If cash flow concerns are left unaddressed, they can escalate and even lead to insolvency in some cases.
What are common cash flow challenges?
The Federation of Small Business found that 37 per cent of small firms faced cash flow difficulties due to late payments, while 30 per cent of small businesses resorted to an overdraft and 20 per cent experienced a slowdown in profit growth.
This stresses the importance of business owners to keep up to date with their current finances and what they are owed and to not spend more than they are earning.
Growing businesses can struggle more with cash flow as expansion often requires investing in more staff and equipment before income is received.
It can even take just one or two late payments for cash flow to become stretched and affect your business’s ability to meet its own commitments.
How to improve your cash flow?
One of the most effective ways to manage your cash flow is to improve your invoice and debt collection services.
Invoices should be issued promptly and include clear payment terms. If these terms are not met, then a policy should be in place to collect overdue invoices and debts.
Many businesses also benefit from using software to help automate invoices and reminders and additional payment methods can help reduce the risk of non-payment.
This can create a fair collection process and help businesses find the balance between protecting their financial interests and maintaining a positive customer relationship.
Cash flow forecasting is another effective way to help track any funds and expenses, identify any shortfalls in advance and plan investment decisions.
Reviewing costs regularly and assessing where non-essential costs can be cut can help protect cash reserves as the business grows.
Some businesses may benefit from external finance, such as invoice finance or an overdraft facility, to help manage cash flow gaps better and deal with longer customer repayment terms.
How can we support your cash flow management?
Cash flow management plays a vital role in a business’s growth and early financial advice can help you set up systems and make informed decisions for long-term plans.
Small businesses should try to prevent cash flow issues from arising and undertake due diligence on customers before lending and consider a deposit for riskier customers.
Our expert team can help strengthen your cash flow and build a cash flow reserve for when your business faces unexpected expenses or downturn.
With secure cash flow, small businesses can build resilience and continue to grow year-round.
For expert financial advice and support, contact our team today.