• 6 Ways Cash Flow Problems Can Be An SME's Silent Assassin By Julian Hornby Of GapCap

    By Julian Hornby of GapCap


    However successful, innovative or budding a business may appear, poor cash flow management can bring about their downfall. This is illustrated by the Office for National (ONS) statistics, only 45% of startups reach their 5th birthday. Whilst eventually a business will enter into insolvency if cash flow struggles overwhelm them, there are many unexpected side effects which can accellerate the decline of a firm, as outlined below.

    1. Missed Business Opportunities

    As a young business, every opportunity may be valuable to the firm, whether it be funding a big order from a customer or simply investing in new equipment to facilitate expansion. Missing such opportunities will be highly detrimental to the growth of an SME and ultimately will lead to stagnation.

    2. Relationship struggles

    Experiencing late payment terms has a domino effect on an SME?s suppliers. Paying one?s suppliers late will damage any ties within the relationships one has established. Equally, customers can become frustrated when they are becoming chased for payment, a typical occurrence of a cash strapped business.

    3. Employee Satisfaction

    The happiness of a business? workforce is vital to their success. Cash flow problems will often lead to delays in payroll, which ultimately will exacerbate a dissatisfied culture amongst the team. How many employees are content to remain at a business that is scraping the barrel to pay their wages?

    4. Increasing Bank Charges

    Cash flow struggles will lead to a business seeking out financial support in some capacity - which invariably will lead to incurred interest charges and service fees. As a growing firm, such costs can have a significant impact on profits which in turn can affect the firm?s appearance to investors, customers?

    5. Personal Difficulties

    Whilst it may sound trivial, cash flow strains can lead to enormous pressures on business owners. Whilst it may sound trivial, this in turn can directly lead to issues within their personal lives, from health problems developed from stress to marriage problems.

    6. Insolvency

    When an organisation becomes unable to meet their financial obligations on due date, insolvency proceedings can be initiated by a firm?s creditors. With roughly half of SMEs failing within their first 5 years as a result of cash flow restraints, ultimately poor cash flow management be the beginning of the end for an SME. This is clearly a very real danger for the UK?s young businesses and thus clearly highlights the importance of a steady cash flow.

    Strategies to solve


    As illustrated, the side effects of poor cash flow can creep up on you very quickly. Whilst there are many simply tactics to keep on top of your cash flow forecasting, it is very likely that businesses will need to seek alternative funding to stay on top of their outgoing payments. No matter how healthy a company?s trade debtors line appears on their balance sheet, failing to release that capital when one?s creditors come calling can bring about failure. It?s time to start forecasting your future cash flow more efficiently or seek a funding partner to help smooth the peak and troughs.

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