Can you save your small business money by keeping your finances flexible?
Making use of flexible financial products will enable you to weather the stormy waters of uncertainty ahead for the UK
Small and medium businesses are the backbone of the UK economy; they make up an estimated 99.9 per cent of the country’s businesses and have a combined turnover of £1.8 trillion. If they sneeze, the nation catches a cold.
We should, therefore, be concerned about their health and be alarmed by a recent study from Bibby Financial Services.
Its latest SME Confidence Tracker showed that:
- The value of unpaid invoices written off by each business has risen more than 70% compared to last year – now standing at more than £20,000
- Investment is declining among small businesses, with the average planned financial injection dropping from £101,920 in Q2 2016 to £65,782 in Q2 2017
- More than a quarter of small businesses said they were holding back investment because of the uncertain economic outlook in the UK
At a time of low certainty and confidence, it pays for small businesses to have a flexible approach to finance. That way they can ride out the storm and remain nimble, adapting to the uncertain circumstances that lie ahead during the Brexit negotiations.
You can see how this flexibility becomes a strength when it comes to both essential expenses and securing capital.
Flexible finance for essential expenses
Although a lot will depend on your company’s size and sector, it makes sense to seek flexible finance for essential expenses. For instance, companies such as LeaseVan can provide businesses with a number of payment options for leasing commercial vehicles.
If you are heavily reliant on transport for business purposes, this kind of agreement makes perfect sense. You can secure a fixed cost for use of your vehicle and include maintenance packages to cover the cost of any repairs required.
Leasing also means low initial payments as opposed to a large deposit – meaning that you’re not having to make a big investment up front. At the end of your lease you have the chance to choose whether or not to purchase a vehicle, lease a new one or downsize with minimal fuss.
Small businesses can also reclaim 50% of the VAT on finance and 100% of the VAT on maintenance.
The benefits of leasing can also be applied to other areas of the business too, such as your equipment or premises. In both cases, you can enjoy greater flexibility without the extensive responsibilities and changeable costs of ownership, which many small firms struggle to stay on top of.
While it’s nice to have assets, poorly performing assets – such as old vans and offices in need of repair – can be a real drain on finances. Flexibility works both ways too – it’s easy to upgrade to more expensive transport or equipment if you’re leasing.
Flexible finance for securing capital
It goes without saying that small businesses must make regular payments for things like staff salaries and VAT. However, they don’t always know how much money they will receive and when it will arrive. For this reason, companies often struggle to forecast their cash flow and financing needs. How can you plan for the unknown?
On account of such uncertainty, it is advisable to pick financial products that allow for flexibility. One option is an overdraft, as it allows you to manage short-term working capital and only pay for what you borrow, when you borrow it.
You might also be able to secure a product that allows you the chance to overpay when times are good and redraw funds later if the picture changes. Other features to look for are loans which offer you the chance to start with low repayments and increase them over time and products which allow capital repayment holidays.
However, you should also be mindful of being charged for finance that you don’t end up using. Unfortunately, some providers will charge non-utilisation and early repayment fees or use monthly calculations rather than working out interest on a daily basis. Therefore, you should always check a provider’s early repayment policy or simply ask how they calculate early repayments.
The secret for finding flexibility from finance is to choose a provider and product that can respond to your business’s needs. So, look beyond enticing headline rates, concentrate on the annual percentage rate (APR), do your maths over a whole year and always check you can actually borrow what is on offer.
By obtaining financial products that allow you the flexibility to reflect the realities of market conditions and making use of flexible agreements to pay for assets, small businesses can ride out the storm and thrive in the long term. There’s no doubting that times are tough – and that there’s a lack of confidence and certainty for UK businesses at the moment – but embracing this flexible approach to finance could, and should, help.