How SMEs can improve cash flow in the current economic climate

By Boost Business Lancashire

26 Jun 2024

03-AccessToFinance.jpg.jpg

Cash flow relates to the cash and cash equivalents transferred in and out of your business. Positive cash flow is when you have more cash coming into your business than you have going out and negative cash flow is the opposite. 

If your business has negative cash flow for a sustained period, it can become difficult to fund the necessary day-to-day operations in your business. However, managing cash flow is one of the key challenges for SMEs, particularly in the current economic climate of volatile costs.

Mark Gibbons, Access to Finance – lead adviser, outlines five ways to help SME business leaders tackle cash flow issues: 

1. Diversify revenue streams

Relying solely on one revenue source can be risky. SME business leaders should explore diversifying their income streams. This may involve offering new products or services, targeting different customers, or expanding into new markets and regions where appropriate. 

Diversifying can reduce an SME’s dependence on a single source of income and mitigate cash flow fluctuations. It improves the chance of maintaining profitability no matter what market conditions the business may be facing.

2. Adopt effective expense management

Keeping tabs on expenses is crucial. SME business leaders should regularly review their costs and identify areas where they can cut unnecessary spending. Negotiating better terms with suppliers and creditors, improving inventory management, and reducing overhead costs can all contribute to better cash flow management.

It is also important to adopt an effective employee expense policy, so employees understand the rules and which expense claims are reimbursable, and to ensure that expenses are kept to a minimum. 

With a control on compliance and company costs, cash going out of the business can be more accurately forecasted in future cash flow planning.

3. Improve cash flow forecasting

Accurate cash flow forecasting enables businesses to anticipate cash shortages or surpluses. By analysing historical data and considering upcoming expenses and revenue, SME businesses can create realistic cash flow projections. This will help to plan and take proactive measures to address any shortfalls.

Cash flow planning includes estimating the likely sales within the period of the forecast. This may include seasonal patterns that can be reviewed from past reports or peaks during advertising and marketing campaigns.

Once likely sales have been estimated, the expected payment period for these goods and services needs to be determined. Being realistic about when payments will be made is critical, as it is highly likely that late payments will be received, so factor this into the forecast.

Cash flow forecasts also needs to include fixed and variable costs during the forecasted period including rent, lease of equipment, salaries, membership fees and tax payments. Variable costs will include payment of stock and raw materials and delivery and shipment costs, which can fluctuate frequently.

When creating a cash flow forecast, it is important to continually review it and keep it up to date.

4. Manage your billing carefully

Billing management is a critical part of any SME’s financial operations. The process encompasses the whole revenue cycle of the firm from the initial pricing and quoting for the delivery of products and services to the final payment of a bill from the customers.

Timely invoicing and effective follow-ups are critical. SMEs should send out invoices promptly and have a system for tracking payments. Offering incentives for early payments or penalties for late payments can encourage clients to settle invoices on time.

Here is a list of the processes behind better billing:

  • Planning and setting up the billing process for the business
  • Organising the billing structure including customer accounts, product information and supplier details
  • Creating and sending out invoices on time
  • Tracking payments and dealing with late payments
  • Maintaining accurate financial records and producing financial reports

5. Access external finance wisely

Sometimes external financing is necessary for growth. SMEs should explore options such as business loans, lines of credit, or invoice financing. However, they should carefully assess the terms, interest rates, and repayment schedules to ensure they don’t exacerbate cash flow challenges. 

Just because an offer of funding is on the table, it does not mean that it is the right solution to cash flow issues.

Each SME’s situation is unique, so it’s important to put together bespoke strategies to fit specific business needs. Perhaps, by implementing a combination of these approaches, SMEs can manage their cash flow better.

About the author

Mark has over 15 years of commercial lending experience supporting SMEs ranging from startup funding to asset-based working capital facilities and equity investment.

As the lead adviser of the Access to Finance service in Lancashire, Mark provides business support to businesses in Lancashire seeking to grow and raise finance. The fully funded service offers free and impartial advice on a range of funding options across the finance landscape.

The Access to Finance service is for ambitious businesses with desire to grow, invest, create jobs and / or innovate and trade internationally. Whether you are looking to secure investment, seeking a loan or planning an acquisition, our team can help.

Boost’s Access to Finance service recently launched a new Investment Academy designed to help businesses better understand how to secure equity investment. Those who are interested in the Investment Academy are invited to an online launch event on July 10. It will include an overview of the current business finance landscape, further details about the Academy and give eligible businesses the opportunity to submit expressions of interest.

To contact the Access to Finance team or to register to join the Investment Academy online launch, call the Boost helpdesk on 0800 488 0057.

Latest news

1

Work begins on £3m youth zone expansion Blackburn Youth Zone Rosslee Construction

Work begins on £3m youth zone expansion

11 Jul 2024

2

Employment initiative launched at careers conference Careers Hub Event

Employment initiative launched at careers conference

09 Jul 2024

3

New manager takes the helm at Conkers Day Nursery in Langho Katie Twine manager at Conkers.jpg.jpg

New manager takes the helm at Conkers Day Nursery in Langho

12 Jul 2024

4

Farleys assists Basically Cheer and Fitness with new lease in Burnley Parkside Methodist Church.jpg.jpg

Farleys assists Basically Cheer and Fitness with new lease in Burnley

12 Jul 2024

5

Prime industrial developments in Blackburn go to market Trevor Dawson Sigma&Omega.png.png

Prime industrial developments in Blackburn go to market

12 Jul 2024

Bec Web Strip 980x120
Background image for hub sign up block

LBV Hub

Leverage Lancashire Business View platforms

Post your news
Post your events
Post your offers
Build your network
Improve your SEO
Gain coverage in the magazine
Sign-up
Events
Lancashire Built Environment Conference
BEC 315 X 315 Px
Networking
25 Sep 2024

Lancashire Built Environment Conference

Conference and Exhibition Centre, Winter Gardens Blackpool, FY1 1HL

08:30 - 13:00

RISE - The Academy for Female Leaders and Managers
WENDY BOWERS RISE Illustrstion copy.jpg.jpg
LBV Hub Seminars
11 Jun 2024 - 04 Dec 2024

RISE - The Academy for Female Leaders and Managers

East Lancashire Chamber of Commerce, Clayton le Moors, BB5 5JR

09:00 - 16:30

LBV117 Magazine Launch Event
DSC9389
Networking
16 Jul 2024

LBV117 Magazine Launch Event

Blackburn Rovers Football Club, Blackburn, BB12 9EE

16:00 - 18:00

A Freelancers Introduction to Co-ops with John Atherton
Screenshot 2024-06-13 at 13.59.57.png.png
LBV Hub Seminars
17 Jul 2024 - 17 Jul 2024

A Freelancers Introduction to Co-ops with John Atherton

Society1 Coworking Space, Preston, PR1 3LT

14:00 - 16:00

The Business Network Central & East Lancashire
LBV Header (10).png.png
LBV Hub Networking
18 Jul 2024 - 18 Jul 2024

The Business Network Central & East Lancashire

Mytton Fold, Langho, BB6 8AB

11:30 - 14:15

Conversations in Creativity - Creative Networking Event
Untitled design-4.png.png
LBV Hub Networking
18 Jul 2024

Conversations in Creativity - Creative Networking Event

Society1 Coworking Space, Preston, PR1 3LT

17:30 - 19:30

Lancashire Economic Breakfast
LBV Hub Seminars
18 Jul 2024

Lancashire Economic Breakfast

The Mill, St Catherine's Park, Preston, Lancashire

07:15 - 09:00

Preston Freelancer MeetUp and Coworking Day
Screenshot 2024-06-13 at 13.55.10.png.png
LBV Hub Networking
30 Jul 2024

Preston Freelancer MeetUp and Coworking Day

Society1 Coworking Space, Preston, PR1 3LT

10:00 - 12:00

Chamber Breakfast Networking
Chamber Logo1.png.png
LBV Hub Networking
31 Jul 2024

Chamber Breakfast Networking

Pye Motors, Morecambe, LA3 3PF

08:00 - 10:00

Scaling your revenue: From zero to £1m in 60 months
CBP-logo LBV.png.png
LBV Hub Webinar
31 Jul 2024

Scaling your revenue: From zero to £1m in 60 months

Online, Online, Online

08:00 - 09:30

Online Women's Health Clinic
clinic.png.png
LBV Hub Webinar
06 Aug 2024

Online Women's Health Clinic

x, Online, x

12:00 - 12:00

International Coworking Day Open Day
1.png.png
LBV Hub Social
09 Aug 2024 - 09 Aug 2024

International Coworking Day Open Day

Society1 Coworking Space, Prestin, PR1 3 LT

10:00 - 13:00

Advertise with us

Reaching 50,000 members, our print, digital and event platforms offer a fantastic way to raise your business profile and help you grow.

Find out more LBV116 Online Graphic
Subscribe now

Weekly news bulletin