Cash Flow Management is Key in Keeping Businesses Afloat
One of the biggest killers of small and startup businesses is cash flow. With over half of small and startup businesses failing in their first five years of business due to poor cash flow, it is something every business owner must learn how to overcome. Here are some helpful tips for you to avoid these pitfalls and make sure your business will not end up unable to operate due to lack of funds.
According to the ONS or the Office for National Statistics, only 50% of startups survive beyond the 5-year trial period and most often than not they fail to make it to their fifth anniversary as a business. Moreover, later studies have revealed that around 90% of small businesses and startups fail drastically due to bad cash flow. Although revenue and profits are very important, many businesses remain to trade in the short term even if they are suffering from a loss by delaying payment to creditors or working out an alternative pay strategy. But, once the superiors ran out of cash, without lending they can no longer augment daily needs, and businesses go to oblivion.
Without financial issues, publicly traded businesses, small to micro businesses need constant access to cash to buy inventory, meet business expenses, and pay suppliers, and employees, etc.
Research from Lovetts, a debt recovery law firm, revealed that 55% of the County Court Claims cases in 2015 resulted in a CCJ or County Court Judgment since the debtor was unable to pay. Approximately two-thirds of businesses in the UK experience late payments of 60 days and more, with invoices amounting to £55 Billion unpaid or outstanding. This phenomenon is killing small businesses.
Studies showed that small firms waste about 2 weeks of productive time chasing over invoices instead of spending time growing their business.
Late payments mean reduced profitability, late payments to suppliers, and produces decline in business growth. Hundreds of businesses have to close each year because of cash flow problems and not because there is a problem with their business. For instance, in the West Midlands alone, the average business in the area owed over one hundred eight thousand pounds in outstanding invoices, and an increase of over 90% in the past two years.
A new study conducted by financial experts further reveal that the importance of businesses with steady cash flow cannot be undermined as it helps in the overall business operation. The study indicates that more businesses are looking for financing, with an overall credit being offered to businesses in the tax year beginning April 2015 amounting to £841 Million from the previous year.
With many businesses following the practice of accessing alternative financial services like payday loans, the companies are relying on top lending figures to help SMEs with their funding resources, and with the number of applications increasing dramatically on an annual basis.
The importance of cash flow cannot be underestimated. Clearly, it is what keeps any business afloat and running. Short term loans such as payday loans can help not only individuals but also organizations and companies that need to keep their head above the water.