There’s no excuse for not knowing your company’s financial health

Real-time cash flow forecasts should be adopted by every SME, says Optimum Finance CEO Richard Pepler

A recent ONS report showed that UK productivity is flatlining in 2018.

Output per hour increased by 0.4 per cent in the second quarter of this year, effectively cancelling the decline of 0.4 per cent of the first quarter of 2018.

One of the ways we see SMEs increasing productivity and efficiency is to move more business functions onto digital self-serve platforms.

Finance is undoubtedly a good place to start.

Far from doing away with the skills of the business accountant, financial management software solutions can add value to decisions made by SME owners, with accountants increasingly taking on more advisory and strategic roles.

We will see more and more businesses adopt a “digital first” approach to financial management in the coming years.

You don’t know the numbers

As the use of emerging technology increases, we will also see SMEs being able to make decisions faster than ever before. Responding to seasonal or economic changes requires real-time access to the company’s cash position. Using financial software packages saves time that in turn allows for more time to develop growth strategies.

I’m still surprised when I meet business owners who don’t produce cash flow forecasts in any format – paper or digital.

It’s impossible to make strategic decisions and plan for growth if you don’t know the likely financial position of your business today, let alone in three months’ time.

We know lack of cash in the bank is the reason the majority of businesses fail – not lack of profitability. This situation often arises because the SME owner does not have sight of their firm’s current financial health. This is no longer an excuse in the digital world.

Cash flow problem

Digital reporting can also be useful in combatting the UK late payments culture in business. It’s widely known that larger corporations insist on imposing lengthy payment terms or will consistently fail to pay invoices when they’re due. This puts pressure on smaller companies which still have to pay staff and suppliers.

When we surveyed a number of SMEs, only a very small proportion (6 per cent) said they actually get paid in accordance with their terms, and nearly a fifth (19 per cent) said they could not predict the financial position of their company in three months’ time.

Accurate data and management information is key to identifying the causes of cash flow pressure; digital solutions and app-based reporting functions should be embraced by SMEs to enable them to keep on top of their financial position.

App-based funding

Cash flow can of course be affected by conditions outside the control of the business manager and, in these situations, access to funding becomes more important than ever.

Until now, the process of applying for loans, overdrafts or other sources of funding was slow and complex. Technology is now enabling businesses to access cash quickly to alleviate short-term pressures and to fund capital investment and growth plans.

Our own contribution to business digital transformation is our industry-first app, aimed at accountants and their SME clients.

In just one minute and with just eight clicks, they can, with their clients, get an immediate approval on funding – even faster than logging on to your laptop (well, mine at least).

This simple application process alleviates stress and worry and enables the business owner to focus on running their business, which is, of course, the best use of their time.