SMEs obliged to fight - or fail

Finance Director Graham Baskeyfield discusses strategies to tackle the tough months ahead as demand continues to flat-line. The media also hold a litany of distressing news regarding the increased reluctance of SMEs to request bank funding.

With limited funds and lower sales volumes, SMEs could risk the loss of their business if they fail to monitor their business closely and react quickly to red flags.

One of the first victims when the credit crunch hit in 2007 was the small business industry due to its lack of major cash reserves and capital assets as well as their inability to secure additional finances. Five years on, these economic casualties are still facing inflation, increased taxes, and massive cashflow problems. Funding still remains a major problem for SMEs whether by choice or by force.

To cushion themselves, SMES need to critically analyse how to fulfill their business objectives this year and keep a tight grip on cash. Rather than be at the whim of external financiers, credit committees, or any form of debt, there are optional internal strategies owner managers can adopt in the absence of a suitable borrowing option or where indebted, to get rid of those high interest rates, bank fees, renegotiations or sudden demand for repayment. The next three basic steps can significantly improve a company’s cashflow and reduce or eliminate the need for external funding:

1. Restructure invoicing cycle and process: Send a bill out as soon as service is rendered. Arrange for stage billing or upfront payments where necessary. Do not wait to bill at month-end if work has been completed much earlier.

2. Be aggressive with outstanding debts and follow through to legal action where necessary: You need to develop a sound and consistent credit control process which includes structured phone calls, 30-day letters and putting goods on stop after 60 days. Also bear in mind you can claim statutory interest at 8% over base plus costs for overdue payments. This may not be necessary for all debtors.

3. Improve payment and billing experience: Make it easy for customers to pay by avoiding invoicing errors and disputes. Be upfront with customers about your credit policy and terms and when they must make payment. Avoid ‘no pay’ or ‘slow’ customers. Encourage regular clients to pay by direct debit or standing order, or less regular ones by online banking or BACS to ensure you can use payments more quickly, minimise the payment cycle and chance of a payment being ‘lost in the post’. This also results in cheaper bank charges for you and your customer. You may also wish to consider bartering and discounting


If you can focus on managing the internal processes effectively, you can easily avoid fees and charges that will eat into your profits and the need to seek external funding from banks. Maintain a good financial management discipline by keeping accurate records, tracking key performance indicators and using current and accurate management information to improve your position. If you are unable to do all of this yourself, find someone who can, especially when you start to spot red flags.

Management teams can easily miss obvious solutions as they are usually too close to a problem. At times, you many need an independent view from someone who can look at things objectively and holistically. The vital issue for many will be to react quickly and seek help as soon as they spot problems which they are unable to resolve on their own. Timely advice could very well save many SMEs in the near future.

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For an informal discussion to see where we can together take on the challenges of the coming months and build your business into the thriving operation you aspire to have, contact the team at e-FM.


GRAHAM BASKEYFIELD is Finance Director at e-FM Network. He can be contacted on 07895 251429 or graham.baskeyfield@efm-network.com. You can also visit www.efm-network.com.

 



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