Cashflow problems for small businesses

Firms struggle to stay afloat

Over one third of small and medium sized businesses have recently suffered cashflow problems, according to new research by IGF.

The  firm’s Small Business Survey 2010 found that 38% of small businesses have experienced cashflow problems during the past two years. For 32% of companies surveyed, these problems were so severe they threatened to put them out of business.

Managing Director at IGF, Tracy Ewen said: “Cashflow is the oxygen of small businesses. A third of small businesses in the UK have had cashflow problems in the recession – and a third of those that did have problems nearly went out of business as a result. The reasons for this are well-documented – banks not lending, big companies squeezing suppliers, etc.”

Ewen has called for owners of small companies to think creatively about potential sources of finance as opposed to a reliance on overdrafts, bank loans or equity funding to finance their growth.

She said: “Alternative options like invoice finance (borrowing money against your sales ledger) means cash flow improves with every new customer signed. Invoice finance is also considerably cheaper than a comparable overdraft charged at 1% to 2% per month.”

The research also discovered that the east of England was the worst hit region, with 46% of companies experiencing cashflow problems, compared to just 30% of businesses in London and the South East.. Nevertheless, of those businesses that did suffer from financial problems in London, 46% said that this threatened the future of their business.

Ewen concluded: “What sector you’re in continues to be a defining factor in your cashflow and credit availability. Small and medium sized enterprises in troubled sectors like building and construction need to be really inventive in their approach to securing stronger cashflow and credit options – the likelihood is that the banks will continue to see these sectors as red flags for some time.”

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