SMEs need to survive on cash flow not profit

Businesses are being advised to take some key steps towards managing their cash flow in order to survive the current economic climate, even if their profit is still growing, according to solicitors Spratt Endicott.

The company’s sebt recovery department, which supports a variety of blue chip clients and SMEs, says that a healthy cash flow will increase in importance as companies fight their way out of the economic storm.

Martin Hughes, head of Spratt Endicott’s debt recovery department, says: ‘SMEs should be doing all they can to conserve their cash, maintaining and sustaining rather than growing out of the downturn. By identifying the key elements that drive their cash flow, they can find ways to cut unnecessary spending.

‘In addition, many smaller businesses are finding themselves relying upon one big client, which is extremely dangerous and can put them in a very vulnerable position of balancing small margins and lengthy payment terms.’

The company also warns that many bigger companies, in order to protect themselves, are stretching payment terms to the limit and leaving small businesses out of pocket with three to four months of unpaid invoices and overheads stacking up.

Martin continues: ‘We can make a significant difference to a company’s outlook by analysing their customer base, re-focusing their cash-flow, and auditing their stock control systems. Implementing tighter credit control and managing debt collection by submitting timely bills and highlighting payment terms can make a very significant difference to a business’s cash flow.

‘It’s also essential for businesses to operate a rigorous credit check with all customers to protect themselves from bad debts. And businesses really shouldn’t be afraid to ask for payment or part payment up front, particularly for lengthier projects.’

Lessons learned during this period should be maintained as part of the business process.

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