Businesses are often cyclical. In principle, this shouldn’t be a problem, because the money you make in the “good” months should cover you for the “bad” months and you can use the downtime to get on with “behind-the-scenes” work. That’s all fine in theory, but in practice, you may still find yourself running into times when there is more month than money, especially if you are a younger company, still hitting your stride. There are many statistics that show, poor cash flow is one of the biggest reasons why SMEs fail in early years, without solid books it’s hard to get capital and short terms loans are expensive.
Here are some tips to help.
Forget about acquiring assets
That may be a slight overstatement, but probably not by much. The underlying point is that you want to do whatever you can to avoid putting your company into a situation where you either have to spend large chunks of money upfront or take out expensive financing to pay for a depreciating asset. For the record, financing itself can be a useful lifeline, but you want to use it appropriately.
Instead of trying to buy up assets, think about accessing what you need when you need it. The most obvious example of this is possibly cloud computing. One of the (admittedly many) reasons this has become so vastly popular is because of the huge flexibility it offers. The same principle can, however, apply in other areas, for example, instead of buying equipment, think about leasing it instead.
Get proper insurance coverage
Insurance is not necessarily one of life’s most exciting topics, but the fact is that life happens, which means that either you need the ability to “self-insure”, i.e. to put away what may be significant funds “just in case” or you need proper insurance coverage, i.e. the right type and level of cover for your needs (and preferably for your wants as well).
The alternative is simply banking on your luck holding and running the risk of being faced with a hefty bill at a really bad time. If you have proper insurance coverage, then you will know your level of risk (in other words, your insurance excess) and will be able to budget for that. You may even find that getting proper insurance coverage has indirect benefits by forcing you to pay attention to risks you might not otherwise have noticed.
If nothing else, then make sure that you have insurance which protects you from any potential claims made by employees or third parties such as vendors working on your premises or members of the general public. Personal-injury claims, for example, can work out very expensive.
Establish financing options as far ahead of time as possible
In principle, you should never have a difficult month because of a foreseeable expense, because you should have planned for it. If you have proper insurance coverage, then you can really limit your exposure to unexpected expenses (please note, these are not truly unforeseeable, that’s why insurance exists to cover them). Life, however, can be full of surprises and they may not be pleasant, which is why you need to think about being prepared for them.
Ideally, you should have an emergency fund into which you can dip as and when necessary, but even if you do, realistically, there’s likely to be a limit to how much you can afford to put away, especially if you are a younger company. That’s why it can be sensible to look at financing options ahead of time and potentially establish relationships with at least one lender which has a solid track record of dealing with SMEs in general and younger companies in particular. If this sounds like you, then please feel free to get in touch with us as we offer service with a human touch and can provide financial help at difficult times.
If you need advice, please do not hesitate to contact us