‘Cashflow borrowing’ stores up critical danger for small businesses warns expert

A leading business expert has warned against the dangerous effects of cashflow borrowing after thousands of small businesses turn to loans to keep their heads above water.

Alison Warner, known as The Trades Coach, has issued urgent advice for businesses in the trades and construction industry following recent figures released by the Federation of Small Businesses (The FSB).  The FSB figures show that almost 40 per cent of small businesses that borrowed money in the last quarter of 2019 used cash to keep going rather than invest in their firms. https://www.fsb.org.uk/resources-page/balancing-the-books-number-one-use-of-small-business-credit-as-late-payments-top-20-billion.html

Alison Warner said:

“I would strongly advise any business to avoid cashflow borrowing.  It can trap businesses in a downward spiral of debt which many can never escape from.  This is the business equivalent of payday loans.  It doesn’t solve the problem, it merely kicks it up the road without tackling the root cause.

These figures are very alarming and it’s a sign that businesses could be facing critical danger.”

Alison has issued the following urgent advice for businesses facing this situation:

  1. Plan for Corporation Tax and VAT

Don’t let a nasty tax bill catch you by surprise; move your money from your bank account into a separate tax account to so you know what to expect. Make good use of Xero, and other accounting packages, which will show your VAT liability and Year To Date profit and loss. This will enable you to work out how much you owe in Corporation Tax (19% of net profit).

  1. Budget for expenses

Review your expenses spending each month so you can see where the money is going, and if you need to cut back in key areas.

  1. Record your weekly enquiries and sales

Keep a regular eye on the number of new leads coming into your business. This means you can react quickly if things start to head in the wrong direction.

  1. Measure your marketing activity

Make sure you know what you are getting in return for your investment in different areas of marketing and change your approach if necessary.

  1. Improve your ‘quote to invoice’ procedures

Map out a clear timeframe and process for quoting for work, sending out invoices and managing late payments.  Clearly assign these tasks to a team member and use the services of a third-party debt recovery company if necessary.

Ashley Weight, business owner and Co-Founder of ShuttersUp said:

“Like any business, cash flow is of paramount importance. After growing more than 100% within one financial year, we had to slow down and take stock of our business.

We decided that if we were to continue to provide the high standards and great service that our customers have come to expect – we would have to take measures to iron out our processes and increase our profit margins.

It’s crucial to slow down and make sure the right foundations are in place before you consider borrowing money!

Our message to other business owners is to get help! Consider getting a business coach who can help improve your business sustainability and cash flow.”

“We work by taking the tried and trusted processes used by large, successful corporations and implementing them in a practical way that suits small-to-medium-sized Trade businesses. Our solutions must deliver financial return for our clients for us to feel satisfied that we’ve achieved our aim.”

— Alison Warner

alison warner

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