Four in ten small businesses undone by cash flow troubles

Four in ten of the UK’s small businesses are being undone by cash flow problems, according to new research.

Some 38% of SMEs suffered as a result of cash flow issues in the last year according to Amicus Commercial Finance, while that figure rises to 65% among firms with 50 to 250 staff.

Of the 500 small business owners taking part in the study, one in seven has faced liquidity problems in the last two years and 12% either came close or entered insolvency.

Cash flow was identified as a major issue, as 71% of owners listed it as the biggest risk that they currently face.

Finance and accounting firms were found to be worse affected by cash flow issues, with 35% of these firms facing difficulties.

When looking from a regional point of view, businesses in the North East have been worst hit by cash flow problems.

Issues resulting from poor cash flow

A lack of available finance causes a number of issues, as 41% of business owners said they had to delay paying suppliers while 30% struggled to meet debt repayments.

Although small firms recognise the issues that can result from cash flow problems, it does not mean they are always able to overcome them.

A failure to manage finances effectively can lead to insolvency, although turnaround management practices might be an alternative.

Late payments are often a root cause of cash flow problems, which is why smaller firms need to actively chase invoices, especially those that have surpassed their payment terms.

Alternative finance options exist to help companies out too, but they need to be aware of what is available and of the potential outcomes.

Firms facing financial difficulties need to act early in order to limit any negative impacts that cash flow troubles could bring, as can planning in advance for potential mishaps.

By Phil Smith

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