Start as you mean to finish

Another year, another round of financial advice for SMEs. The first few months of the year can be tough on small business, particularly when it comes to cash flow. The lead-up to Christmas and New Year is often frantic, as customers want projects finished and everything wrapped up before the holiday season. Realising payment for that work can be a little harder to achieve, creating constraints in cash flow at a critical time of year.

Advice from debtor finance experts Scottish Pacific is to manage cash flow drivers so you are prepared when financial circumstances are tough.

They suggest three ways to keep cash flow on track:

1. Only provide credit to those who deserve it.
2. Agree to payment terms with customers and make sure they adhere to them.
3. Work with suppliers so stock levels are minimal and payment terms in line with their own cash flow cycles.

These may seem like pretty obvious concepts, but it's easy to get caught up in the madness that the end of a year typically inspires.

Peter Langham, CEO of Scottish Pacific, says, "We see the same thing every January and February. With the pre-Christmas rush behind them, business owners return to find many customers still on leave and getting invoices paid becomes even more difficult than normal. It can also be a time of worry, as retailers are relying on good Christmas and New Year sales to bolster their cash flow and determine how quickly their suppliers will get paid."

Debtor finance can be a useful option, as it allows access to working capital that would otherwise be tied up in receivables for 30 to 60 days.

In a similar vein, Bibby Financial Services offers eight actions they say will get your business off to a flying start for the new year:

1. Take control of cash flow management. Keep on top of invoicing, issue reminders and produce a cash flow plan.
2. Revise your funding arrangements. If your current plan isn't meeting your requirement, speak to your lender about more favourable terms.
3. Tackle the clutter. Eliminate anything that has no practical purpose.
4. Reduce post pile-ups. Deal with mail (electronic as well) on a daily basis and immediately dispose of irrelevant information.
5. Get filing. File only essential information - purchase and sales invoices, bank statements and the like.
6. Work smarter. Planning is the key to business success. Ensure you review your business objectives and prioritise actions for the year through a key action plan.
7. Stock matters. Don't tie up all your money in goods. Review stock levels, look back at last year's figures and determine seasonal peaks and troughs.
8. Harness people power. Review staffing levels and skill gaps that could hold your business back. Consider external training courses to boost staff skill sets.

Again, pretty straightforward tips, but it's easy to get bogged down in the day-to-day operations, and things like reviewing the past and planning for the future often get pushed to the side.

Of course you should always speak with your accountant, or any trusted independent advisor, before making any refinancing plans, but it makes sense to use this time of year to ensure you have a complete understanding of the current financial situation, as well as any likely outcomes over the next few months.

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