The UK may be hailed as an economic, hotspot but when it comes to success, not every SME is blessed with a Cinderella story. Driven by a myriad of factors, the latest statistics from British commercial insurer RSA reveal that 50% of UK start-ups crash and burn within five years. The U.S. Small Business Administration recently released similarly dire figures, disclosing that over 50% of small businesses fail in the first year, while a huge 95% shut up shop within the first five years.
So what’s crippling British SMEs? There’s no shortage of inspiration and creativity, however thanks to a harsh tax system, lack of bank lending, poor management skills and ineffective capitalisation, growth is relentlessly stifled. These are all key factors, however one additional nuance trumps them all. Yep, we’re talking about negative cashflow.
The link between cashflow and continuing success
Successive studies pinpoint cashflow issues as the trigger of major business issues, with figures suggesting that around 80-90% of small businesses fail because of negative financing. Finding a balance between outgoing expenses, incoming cash and available capital isn’t always easy, but it is a critical part of facilitating a healthy cashflow, and ensuring your SME isn’t pushed to the brink.
So how can you sidestep falling into the 80-90% bracket? In a nutshell, you’ll need to develop an unashamed reverence for cash. It’s your SMEs best friend, and you should develop an in-depth understanding of all inflows and outflows. In principle, a healthy flow means delaying outlays for as long as possible, chasing up owed money in record time and minimising unexpected surprises like fees, fines and payment lags. Of course, it’s a little more complex than this rule of thumb, which means professionals cash flow finance advice is often an astute option.
Combating Britain’s chronic late payment culture
Late payment terms are becoming a chronic problem for British SMEs, with the latest statistics from CBI revealing that across the UK, businesses are owed a staggering £30 billion. Delays of over two months are now common practice, with a recent study by the Asset Based Finance Association suggesting that the average wait now sits at 72 days. This late payment culture is wreaking havoc on SMEs and while reforms are underway, it’s important not to let your business become obsolete simply due to unfair payment terms.
The need for proactivity
Big businesses may be the ‘bad guys’ when it comes to late payment terms, however SMEs themselves aren’t always blameless. Sometimes, they sow the seeds of their own demise through over optimistic spending, flawed financial planning and a tendency to compromise on payment terms. Avoid becoming a ‘small fish’ pushover by implementing smart cashflow financing solutions that bridge the gap between trade and payment. Offering advances worth up to 85% of the total invoice value, GapCap means you can get savvy about invoice financing, and avoid becoming a statistic.
Want to kill it in the market place, as opposed to be killed by negative cashflow? Get a smart invoice financing solution in place, and make it to the five-year mark, and beyond!
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