Finance Roll

Improving Your Financial Position

With The Bank of England predicting the UK's economic recovery will be slow and protracted this current recession is certainly proving to be a difficult time for the UK's small and medium size businesses (SMEs).

SMEs are very important to the UK's economy as they employ 13.5 million people around 59% of the UK's total private sector workforce - according to the Department for Business, Enterprise and Regulatory Reform.

With no clear end to the recession in sight it is vital that UK SMEs are equipped to survive until the recovery finally arrives. This series of articles is aimed to provide practical advice for UK SMEs to help them cope with the recession and hopefully becoming stronger and more successful.

This first article looks at how businesses can get to grips with their finances to make sure they know exactly where they stand.

Get control of the business finances

Now is a good time for businesses to take a fresh look at their financial records and update them so that they know exactly where the business is financially. Only by having accurate records will a business know if it has a cash flow issue plus with proper records it become much easier to create appropriate budgeting plans.

Using these financial records businesses can then make rolling three month financial predictions taking into account their expected income and expenditure. These predictions can be used to plot the businesses progress and highlight any financial issues that need attention before they become real problems.

Reduce spending

Businesses need to cut any unnecessary spending especially on projects that don't directly generate revenue. Review all business spending to see where savings can be made, but don't be too ruthless the aim is to cut unnecessary spending not all spending.

Reduce late payers

Late payments are always an issue for any business, but during recession it can become a real problem. The reality is it's all about timing and priority, people tend to pay by priority order and when money is available so if you're business isn't near the top of the list or invoices are received when funds are low it's likely you'll be paid late.

Giving incentives for prompt payment is one way to gain priority as can offering flexible payment options. This also allows businesses to target period when money is more likely to be made available.

In addition the UK government has recently launched a new initiative called the Prompt Payment Code . The idea is that companies who sign up to the code pledge to pay their small suppliers on time. The code is also offering clear guidance on payment and complaint procedures.

Getting a loan

Sadly UK banks seem to be less than willing to lend to small businesses. However, things may be starting to improve due to a new government scheme. The Enterprise Finance Guarantee Scheme will support up to £1.3bn of new lending by banks and is aimed at small businesses.

The scheme is designed to enable firms to secure loans of between 1,000 pounds and 1m pounds, repayable over 10 years. The government guarantees 75% of the loan, with the banks covering the remaining 25%.

Most businesses are eligible for the scheme except for those in the agriculture, coal and steel industries.

As with any loan businesses will still need to make a good case for themselves, explaining why they need the funds, and showing that they will be able to pay it back.

Even if a business doesn't require a loan it's always worth keeping a good relationship with the bank as the situation could always change.

Tax

Small businesses with temporary financial problem due to the recession can apply to HM Revenue & Customs (HMRC) to delay their tax payments. Businesses can apply to delay payments including VAT, national insurance or staff income tax.

There are no penalty fees or surcharges; however, an interest payment will have to be paid for each month of delay. The interest payments vary, but a typical level is 4.5%.

The Business Payment Support Service programme, has a dedicated telephone support line - 0845 302 1435. Most callers will get a decision within 10 minutes; however, some may have to wait up to three or four working days.

These are just a few steps businesses can take to improve their financial position for more detailed and expert financial advice SMEs should consider hiring the services of experienced business management consultants like Hedley Basford.

In the next article we will look at how businesses need to adapt to the recession and how they can win more sales and new contracts.