How to bolster your small business for the economic recovery
As the UK economy begins to recover from the downturn, businesses across the country are considering ways that they can cement their financial position. According to a Simply Business survey, nearly 43% of small business owners feel that things aren’t looking better for businesses and there is a general sense that many firms remain in a precarious situation.
To strengthen their position, businesses should try to seize upon new opportunities in the coming months. However less than half of small firms are expecting to expand this year, despite increases in consumer and B2B spending. And many businesses could find themselves at risk as suppliers and creditors tighten their payment terms.
So what can you do to bolster your business’s position, in order to make sure that you are in the best possible position to take advantage of the recovery?
Tightly manage your cashflow
Cashflow is one of the most important priorities for any business. Healthy cashflow means that you maintain stability – and hopefully have money available to take advantage of an unexpected opportunity for expansion.
Use this as a chance to take a fresh look at your credit control policies. How long does your average invoice age for before it is settled? If this period is longer than your agreed payment terms, you are not managing client credit properly. Make sure that invoices are chased down before they become overdue and, where necessary, vet clients before extending credit.
You may also wish to consider factoring solutions. These services can provide you with as much as 90 per cent of the face value of your invoices within 24 hours of you raising them. The remainder is then paid to you when it is settled, minus a small fee. Factoring and invoice finance services can help you to manage and regulate your cashflow – or just provide you with a financial boost when it is needed.
Consider stock levels
According to recent surveys, many firms are restocking at a very high rate. This is in stark contrast with trends over the past two years, during which businesses shed stock very quickly in order to liquidate their assets.
As spending increases, you may well see the need to increase your stock levels. But you should be careful about the rate at which you do this. Remember that consumer and B2B spending are not guaranteed to follow a straight-line trajectory; there may be bumps on the road to recovery. As such, you should think carefully about the amount of cash that you dedicate to stock. This can be a very illiquid asset, particularly if you operate in a sector that relies on a relatively small number of high value sales.
Don’t grow too quickly
Over-optimism is a business killer. Although things are certainly looking up for many businesses, and you may be considering expansion, it is important that you do not bite off more than you can chew. If you grow your business too quickly, you put your financial stability at risk. Indeed, this is a common reason for business failure; over-zealous growth can cause cashflow problems, which can quickly lead to the collapse of a firm.
You should also think carefully before diluting or abandoning your core business. If that core business is turning a profit and will remain viable, do you really want to sacrifice it for the sake of a new market that may or may not yield success? The answer may be yes, but you must ensure that you conduct sufficient research before coming to a decision. There are few things more likely to lead to problems than expanding into a market of which you have little experience, without doing sufficient research.
Don’t be afraid to try borrowing
Much has been made of the banks’ failure to meet their business lending targets. But, while some institutions have undoubtedly been unwilling to extend credit, others have suggested that the money is there – but that businesses aren’t taking it.
It is thought that many firms are put off by the loan application process, or by a sense that they will inevitably be turned down. However, this is not necessarily the case. According to the Simply Business survey, 60% of small businesses have struggled to obtain funding for growth from banks.
British businesses have enjoyed some positive news in the past weeks and months, and there seems little doubt that the UK economy is now on an upward trajectory. But it is important for firms to remember that the road to recovery may still remain bumpy. In order to ensure that you can safely navigate this road, you should consider steps that you can take to bolster the financial health of your business, and put it in the best possible position to benefit from the recovery.