Access to finance biggest barrier to business growth
Finance is one of the key requirements for starting a business or driving growth, but new research suggests it is still the biggest issue faced by SMEs.
Ernst and Young (EY) said that 50% of British entrepreneurs cited access to finance as the single largest barrier to growth when growing or setting up a business.
This does vary on a sector by sector basis though, with 90% of construction firms struggling, compared to just a quarter of pharmaceutical companies.
Rapid growth can quickly absorb cash, which means available funding is closely linked with expansion – a lack of funding could therefore slow growth.
Strong controls over cash and an understanding of cash flow are essential or a small start-up could require business recovery shortly after it commences trading.
Part of this requires realistic forecasting to ensure that finance is not pumped into a business too quickly – a failure to do this could see money wasted; a major issue if little cash is available to begin with.
When questioned about secondary finance sources, 27% of the entrepreneurs questioned said they would look to use retained profit to grow their business.
Only a fifth said they would look to banks, while 16% considered private equity to be an option and 3% said they would choose venture capital options.
Those more likely to use retained profit were found in the North of the UK where four in every ten people choose this option.
Private equity was the preferred options of choice in London, showcasing the different approach to business that occurs in the capital.
Managing finance alongside the day-to-day running of a business can be tough for an entrepreneur, so bringing in assistance could be an option.
Such an individual would then be able to keep a watchful eye on the financial situation and work on possible methods of improving it, whether by cost-cutting or by looking for additional finance.
By Phil Smith