6th August 2024The importance of cash flow management for SMEs

According to the latest official data, June saw the highest number of company insolvencies since May 2023, and the third highest number since 2000. High interest rates and growing cost pressures in the UK forced nearly 2,500 businesses to enter the formal insolvency procedure.

In this article, Simon Michaels, CEO of HW Fisher Business Solutions, highlights the value of effective cash flow management for business survival, especially for SMEs, and how the team at HW Fisher can help.

What is cash flow management?

Cash flow management is the process of monitoring, analysing, and optimising your company’s financial position. It is incredibly important. One of the main reasons that businesses fail is because of poor cash flow management. Even the most profitable business could quickly face issues if their earnings and outgoings do not align.

Why do SMEs struggle with cash flow?

One of the key challenges facing SMEs that creates challenges for cash flow is late payments. The 2023 SME Insights Report by Simply Business reveals the scale of the issue in the UK.

• Almost two thirds of SMEs (65%) say that late payments from customers are a problem
• More than half of small businesses (54%) are affected with overdue payments of up to £5000
• 22% of SMEs said that they are owed between £10,001 to £30,000

Given the ongoing issues with late payments, SMEs should monitor their cash flow situation regularly and carefully.

How can cash flow management help?

Effective cash flow management not only ensures business survival, but it can also help businesses to grow. Three key benefits of cash flow management include:

Improved decision making – Cash flow management provides a clear picture of a company’s financial health. This allows management to make more informed business decisions, such as when to invest in new opportunities, if you need to make savings, and if you need to explore new financing options. It allows businesses to plan strategically for future expenses and to assess whether or not they have the necessary cash to pay for them.

Maintain good relationships with your stakeholders – Understanding your cash flow situation means that you can meet your financial obligations on time. This reliability builds trust and will help you to strengthen your relationships with suppliers, creditors and investors. Long term this might give you access to more favourable lending terms, and investors will see your business as a safer bet, improving your chances of securing any additional funding you might need.

Support business growth – If you are looking to grow your business, it’s likely you’ll need to make some significant upfront investments. This could include hiring new staff, purchasing new equipment, or leasing new facilities. Effective cash flow management means you can assess properly whether you have the necessary funds to support your business’ expansion without jeopardising your day-to-day operations. It can also help you to identify the best time to invest in growth based on your cash flow patterns.

How can HW Fisher help

At HW Fisher, we not only look at historical numbers, but work with our clients to plan, budget and forecast for the future.

Our services include:

• Budgeting – We can help you to create and manage budgets to prevent overspending and provide focus.
• Accounts Receivable Management Systems – This ensures prompt invoicing and efficient collection processes.
• Expense Monitoring and Control – This allows you to track your expenses to identify cost-saving opportunities.
• Tax Planning and Compliance – This ensures you have the required funds to meet your tax obligations.
• Financial Reporting – We can provide regular financial statements so that you have a clear view of financial health.
• Advisory Services – We can work with your key stakeholders to provide strategic advice for informed decision-making and to support sustainable business growth.

To learn more about how Simon and his team can support your business, please get in touch with him here.