Time for SMEs to get even smarter with their cash flow

By Philip King, above, former Small Business Commissioner and Tide Cash Flow Expert 

Small businesses are innovative, flexible, and versatile. They’re also resilient, quick to adapt, and keen to find solutions to problems. That’s why we see many of them emerge and flourish in times of difficulty.

According to latest research the number of companies in critical financial distress jumped by 36% in the last three months of 2022. A firm is in critical financial distress if it has more than £5,000 in Country Court Judgments (CCJs) or a winding up petition against it. For many, this comes as no surprise given the macroeconomic conditions facing UK SMEs, including inflation, high energy costs and high interest rates.

Against this backdrop, managing cash flow effectively has never been more important to the survival and success of small businesses.

Tips to get smarter with your cash flow

With consumers cutting costs and spending less, as well as having less access to credit, small businesses are going to see real pressure on their cash flow. They’re going to need to be proactive and smarter with their cash – here are some tips on how to do this:

  • Identify your funding needs as early as possible and put your applications in before you’re desperate. It’s incredibly tough to look for funding when your business is at a crisis point.

A recent review by UK Finance showed “a continued softening in applications for finance from SMEs. Overdraft applications continued to trend up in the third quarter, but demand for loans fell. Gross lending through loans and overdrafts to SMEs edged down to £4.5 billion from £5.1 billion in the previous quarter. Meanwhile, overdraft applications represented the highest volume of applications since Q1 2020.” There are several forms of finance available for small businesses to consider and you should explore them all. An overdraft might not be the best or the cheapest option.

SME Publications/ SME XPO 2024
  • Look at all of your costs and consider whether they contribute to the core objective of your business. If they don’t, reduce them or cut them out altogether.

Go through your expenses with a fine toothcomb and find those that aren’t necessary. These could include subscriptions to organisations or publications, overnight stays and entertainment that you could do without.

If your business is in the hospitality sector, you could take more drastic actions such as reducing the hours or days you’re open. That way, you’re not spending money on keeping the business running at times when you might have fewer customers. According to Kate Nicholls, the chief executive of UKHospitality, many bars, pubs and restaurants are opting to cut capacity by 20% to meet concerns over quieter operating times.

  • Consider the financial stability of your main suppliers – and, if it looks like they might go bust, look for alternatives to replace them.

You should always be on the lookout for suppliers who could replace your existing ones if they cease trading or become too expensive. When you find a new one, try them out to test their service and see if they’d be a good fit. Having a second supplier ready to go makes you far more resilient.

  • If your key customers are looking vulnerable, work hard to find alternatives so you can maintain demand for your services or products.

Regularly look for alternative markets and routes to market, as well as customers who might be interested in your products or services. Test whether there’s demand and, if there is, start preparing the ground. Begin conversations with potential customers so they see you as a supplier they want to work with.

If you remember one thing from the list above, it should be this: keep a laser-like focus on your cash flow. That is what can ultimately make or break any business.

To help, Tide has produced its own masterclass to help small businesses swim rather than sink during these difficult times.

To finish on a more positive note: while trading during a recession is challenging, it does provide opportunities to businesses of all shapes and sizes. Uber and Groupon are just two examples of businesses that started just after the 2008 financial crisis: Uber formed in 2009 and Groupon started in November 2008. These were innovative and exciting businesses that captured the needs of consumers at the time. Closer to home, Franco Manca and TransferWise are two well-known British companies that launched during the same period and are still going strong.


SME Publications/ SME XPO 2024