Three Common Finance Hurdles for Business
September 24, 2019
Of all business hurdles, financial obstacles can be the toughest to surmount. In this week’s blog, we take a look at some of the most common problems and provide some inspiration to help you stay in the clear.
Stuff You Didn’t Budget For
When it comes to staying on top of household finances, this writer is a proponent of the envelope system.
The basic gist comes down to apportioning every penny of income into ‘envelopes,’ each clearly marked according to its purpose. There’s an envelope for groceries, one for fuel, and another for household bills. An overspend in any category is easily remedied by taking money from a lower priority envelope and making the commitment to spend a little less on – say – going out.
It’s a simple system that works well. But one particular envelope is the source of almost all the cash swapping.
It’s the one marked Stuff I Didn’t Budget For (SIDBF), from which parking fines, vets bills, boiler repairs and all life’s little joys get paid.
For SMEs, the category includes unexpected tax liabilities, lost or stolen stock, replacing equipment, or preparing for acts of god, like auto enrolment and other annoyances about which we can do very little.
The first key to overcoming this is hardly revelatory. SME owners should review spending regularly to identify pain points and shop hard for the best deals.
More importantly, get into the habit of factoring unexpected expenses into your business budget. When the chips are down, a bulging SIBF account can help bear the costs. When the chips are really down, it could be a lifeline.
No discussion of financial hurdles would be complete without reference to cashflow. Without liquidity, tackling business goals isn’t just challenging but nigh on impossible. It’s a problem that almost every business owner has faced at one time or another.
One of the biggest headaches reported by clients regardless of size is chasing money owed. It’s a challenge which can spread quickly across supply chains like a pestilence, with a detrimental knock-on effect to suppliers and buyers alike.
With this in mind, it’s little wonder that the subscription e-commerce market grew by more than 100% per year in the five years leading to 2018. Increased digital connectivity makes the model more straightforward to implement than ever, and the strategy isn’t just useful for e-commerce. An influx of bank transfers on the first day of the month is a glorious thing to behold for any business.
If switching to a subscription model sounds radical, don’t discount invoice factoring.
Funding for Growth
Our final hurdle is the challenge of meeting growth goals. This year, the bank of England’s May Money and Credit Report found that bank lending to SMEs grew by a measly 0.4% in the year leading to the end of May. Meanwhile, research from Oxford Economics states that lending by banks to small business has fallen by 3% since 2015.
The message is clear: Chasing growth dreams is no easy feat – especially for newer businesses or those who don’t meet the big banks’ often opaque lending criteria.
However, it’s not all bad news. The British Business Bank recently announced it had supported finance of £6.6bn to nearly 90,000 SMEs in 2018 – up 27% on the previous year. It said almost 90% of the funding it supported came from new smaller alternative and challenger lenders.
There are plenty out there for businesses prepared to look beyond traditional institutions -many with far more forgiving lending criteria than SME owners will be used to. The trick is finding the right one and building a relationship to support growth ambitions in the long term.