Business Challenges Series: 3. Finance

Key Challenges SME Business Owners Face

Finance remains one of the key challenges facing business owners, in particular raising funds and cash flow.

In our previous two blogs that started off our series on the key challenges facing business owners we unpacked the Leadership mindset and the need for getting the right advice.These are both crucial to getting a handle on the area of finance for any business venture whether established or at start up stage.

Raising Finance

This is one of the toughest challenges faced by business owners. If you’re raising finance, whether from a bank or other lender, you’ll most certainly need a business plan. We help many clients with this, as it not only gives lenders confidence, but also allows them to set goals and plan ahead with clarity.

Banks have become firmer on lending to businesses and are generally wary of lending to new companies against cash flow projections rather than historical information like an existing credit history.The major concern for business owners is having the right working capital to weather the peaks and troughs, and for start ups just to get going. For the latter, there will probably be upfront costs to consider - such as suppliers requiring upfront payment.

This was echoed in a recent piece of research carried out by OMD UK and the Telegraph Media Group, entitled Entrepreneurial Britain 2017, which surveyed over 1,000 entrepreneurs and business owners. The research revealed that six in ten use external sources such as banks or grants to finance their ventures, but four in ten have used more personal sources such as family and friends for cash injections.1

Some 40 per cent are put off by the lack of information available to them on how best to set up a business, according to a study by Amigo Loans. Even existing business owners are confused, with 79 per cent of current small and medium-sized enterprises (SMEs) not aware of the funding options available to them.2

Outside of banks, family and friends, however, there are alternatives such as grants, partner investors, business angels, guarantor loans, crowd funding and factoring. These can be effective in raising working capital. Again, taking on board the right advice is crucial, our resident financial expert is on hand to work alongside our clients to find the right path.

Managing Cash Flow

Poor cash flow is one of the key reasons for business failure, even profitable businesses can run out of cash when it is most needed. Keep your eye on the ball to achieve a healthy cash flow and grow your business with these tips:

1. Planning

Only by staying close to the income and outgoings of your business can you stay in control, make informed decisions and protect your business against unforeseen events, such as that unexpected tax bill from HMRC or the uncertainty of Brexit.

A regularly updated cash flow forecast identifies peaks and troughs so that you can make sure that a loan is in place for when cash flow is tight and you need cash fast.

This is not just about paying a consultant to prepare your business plan. It’s also about anticipating issues affecting your finance performance and having the right measures in place to deal with them. Proper planning gives you the opportunity to analyse your business vision and how to execute it, in a consistent and sustainable way.

2. Reducing Client Dependence If a single client makes up more than half of your income, you are more of an independent contractor than a business owner. Diversifying the client base is vital to growing a business, even if the client pays well and on time.

The risk this poses in the longer term to your cash flow is significant - if this client were to move elsewhere.

3. Maintain Enough Working Capital

A lot of salaried people live from pay cheque to pay cheque, similarly businesses can slip into this habit too - always waiting for that next big client to pay up. Sometimes, they have overdraft arrangements with their banks that they utilize to pay salaries or supplier payments.

This is something business owners need to be wary of as it brings a significant risk. It’s important to maintain a surplus working capital in the kitty to give some breathing space to focus on building sales and growth.

4. Focus on More Profitable Sales

We'll be focusing on this in subsequent blogs, but identifying more profitable products or services within your range will add significant value and cash inflow. Also look at lowering the cost of sale. For example it is 5 x more expensive to sell to a new customer than to an existing one.

This where your businesses needs to better communicate within and with its customers. A good example of a marketing led approach to customers is staggering a large order so that the actual delivery time-frames and quantities of the client are met, but not all at once just to fulfill the entire order quicker at the expense of other orders - diversifying.

5. Clear Payment Terms Agreed Upfront

No one likes to talk about money, but having those conversations about stricter payment terms upfront can avoid awkward ones later on. This together with more stringent credit assessments reduce the risk of late or non payments.

In fact, research carried out by Ormsby Street insights firm suggest that UK small companies that regularly credit check their customers are around 30 per cent less likely to experience business failure. 3

6. Inconsistent Payers

Start focusing on customers who pay well and on time. If you notice they are not paying on time, you need to start renegotiating your payment terms; or start looking for customers with better payment terms and identify a product line that can give you recurring customers.

7. Factoring

If your business sells products and/or services to other businesses and is struggling to maintain healthy cash flow, raising finance via outstanding invoices could provide a lifeline for the business. Factoring companies help SMEs that are short on capital by releasing the value tied up in the sales ledger.

Raising finance through factoring can speed up the payment cycle to create a steady and predictable flow of cash running through the business. A good website, rated 5 star by Trust Pilot, to find factoring comparisons is

8. Technology

The modern digital era has made it much easier to manage cash flow using technology. Invoicing through company CRM systems and Cloud-based accounting saves time and helps you stay on top of finances by viewing accounts across a number of devices. It also removes the time and effort that used to be involved in backing up data.

There are many tools and apps available that have been designed to keep track of businesses expenses. Xero and Quick Books are good examples. Input the details and the app or online service will do the rest for you. Once you are on top of cash flow, you’ll be in a much better position to create a stable platform for business growth.


Warren Arthur has 25 year+ experience in leveraging digital marketing strategies and implementation to help local businesses survive & thrive online. He works with businesses of all different shapes and sizes across the UK, US & Europe - and is passionate about empowering his clients to find their success in this digital age we all live and work in.

Find out how he and his team can help your business thrive online, contact us






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