Why cash on hand is vital for SMEs

By Paul Christensen, above, CEO of Previse

Just as the economy should be bouncing back, for many small companies life is getting tougher. With pressure on all fronts, from high inflation, staffing shortfalls, increased shipping costs and raw materials shortages, it is hard not to feel the effects on the bottom line.

The importance of realistic cash planning

Having cash on hand to meet these costs and still be able to grow is becoming more challenging, so it’s important to plan carefully to make sure you have the cash you need, when you need it.

Budgeting is often used to do this but in an uncertain environment the age old rule of thumb “add 5% to last year and call it a day” won’t cut it. Here are some helpful things to consider as you plan forwards during 2022…

Prices for raw materials are continuing to rise with no end in sight for when they may stabilise. According to the UK commodity report from Linesight; diesel is up 12%, lumber is up 35%, and concrete has risen 28% on previous years. Whether you’re purchasing commodities such as these, or other materials for your business, you should be reflecting sharp increases in your budget.

It’s a similar story for transportation, Freightos/Statista report that freight costs are 630% higher at the end of 2021 vs the costs seen in 2019 and a Skills and Employment report has shown that the wages of delivery drivers are up 7.8%.

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More widely across the globe, labour shortages are proving to be a real problem for businesses with the ONS statistics for wage inflation nearing 5% in Feb 2022.

In addition to these cost pressures, supply chain challenges created by covid and Brexit are likely to mean more working capital is tied up in stock in transit.

On the income side of the cash flow plan, more and more consumption is trending towards online purchasing and it is predicted that this will continue in both the UK and the US. Ensuring that you are investing in your online sales is likely to make a difference to how well you compete.

With so many costs rising, and extra requirements for cash, ensuring you have the capital available to grow may well be the last thing on your mind. The secret to growth is to have the financial resources to grasp those opportunities when they’re there, before they either disappear or your competitors snap them up.

Show me the money!

Where it may be a scary prospect to think about turning to your bank for support funds when these opportunities arise, new forms of easily accessible cash can now make cash flow planning a lot easier.

Lending that advances cash based on your regular sales is a new type of borrowing that is suited to small and medium sized businesses, and provides a lot of flexibility.

For businesses to survive through the pandemic, you have to have been able to adapt to what has been thrown at you, and there is no reason your funding should not be able to do the same.

Opportunities in business arise more often than you think. Knowing that you have the capital available to fund them allows you to do business with confidence.

Paul Christensen is CEO of Previse whose InstantAdvance product offers customers financing between £10k-£500k, with no equity dilution.

SME Publications/ SME XPO 2024