Rick Smith: Cash flow – January blues for Lincolnshire SMEs?

It’s that time of year again. January is often a turning point for companies: the busy Christmas period comes and goes and often proves to be an indicator of success. A crucial time of the year in terms of payments can also be difficult.

When the calendars are changed over it can often seem less like ‘Happy New Year’ and more like, ‘What do we do next?’ The season of goodwill doesn’t always extend to making timely payments.

Cash flow problems are of course common. The sad reality is that more than half of SMEs don’t survive longer than five years, and poor cash flow is a very good indicator of things going downhill. Taking a step back and considering your options for improving cash flow can work wonders.

Cash flow problems often stem from bad debts – those debts that can’t be recovered. Unfortunately, many companies have to seek help to avoid defaulted payments, and things can quickly spiral out of control if action isn’t taken.

Businesses should have credit control systems in place to collect any money that is owed from customers. There can be no doubt that prioritising the efficiency and effectiveness of this system is important, especially when the company is in its infancy.

As long as businesses keep their books up to date – which they always should – the process is straightforward. However, this is not always the case.

Many companies simply need to set aside time to administer reminder emails and letters, and to pass anything overdue to recovery firms quickly. Following the Christmas rush and the time off around the start of January, the sooner this kind of action is taken, the better.

Bad debts can quickly lead to cash flow problems, and credit checks on customers that are being offered credit are usually a must.

This doesn’t mean having to refuse custom if credit records are poor, but measures can be put in place such as deposit requests or partial invoices to avoid problems further down the line.

Bookkeeping, although often an arduous task is often an area where businesses trip up. There’s lots of information out there on the initial start-up costs of various businesses, but little about how many working hours an individual needs to put in for the first months and years of a start-up. These can sometimes verge on the ridiculous.

Many directors simply feel that they don’t have enough hours in the day and assume that they can catch up with this later. This is often the root cause of cash flow problems – the sooner the issue is caught, the more likely it can be addressed.

It is so important to put a few hours aside to work on your company rather than in your company. As long as you have caught the issue in time, there are things that can be done.

If you are experiencing cash flow problems then you are not alone. This especially rings true if businesses are still within the first few years of company incorporation. These first years tend to be a huge learning curve.

As long as you are aware of these issues then you can tackle them head on.