4.10.2023 | Tax

SMEs are struggling to access finance, but robust financial forecasting can help

Accessing finance is a normal part of business for most companies. Growth takes investment and managing debt is often part and parcel of the finances. 

However, a report published by the Association of Chartered Certified Accountants (ACCA) has suggested that small and medium-sized enterprises (SMEs) struggle to access finance and working capital.

The ACCA’s data showed that small firms are struggling to access finance for a range of reasons, including rising interest rates.

57% of firms reported that borrowing to manage cashflow has proven more difficult over the last quarter compared to the previous 12 months.

47% stated that supplier credit is now harder to access, and an additional 27% said that accessing support from HMRC’s Time to Pay initiative is harder.

These kinds of barriers can be detrimental to business – it’s no wonder that the figures for SMEs that have been forced to fold are high, too.

While economic factors play a part in what finance is available at certain times, there are best practices to ensure that your business is robust and in good shape should you wish to obtain loans or working capital – or avoid having to do so.

Director at Beatons Stephanie Hammond said:

“Financial control is key here, making sure that you can demonstrate good record keeping and a secure knowledge of your profit and loss as well as cash flow.

“Financial control is what ensures your business sustains and improves profitability – and part of that could mean being able to access finance.

“Our experts have many years of experience in forecasting and cash flow management. Good control gives your business much more power – and you, as the owner or director, confidence in seeking support when it’s needed. “

What does sound financial control look like?

  • Being able to decide which areas you need to monitor and how frequently
  • Generating the numbers quickly and accurately
  • Being able to share the results with everyone who needs to know them
  • Interpreting the numbers correctly

Stephanie added: “SMEs that have struggled to access finance might need to reassess how they are recording the finances and what data they have available about how the business is performing. Only knowing the picture from a few months ago isn’t useful enough, and directors need accurate, up-to-date information to share with finance decision-makers.

“The first step is to set up a system that enables you to generate reports quickly  – certainly no later than ten days after the month closes.

“A system that regularly updates sales, creditors, cash position, etc., is ideal. Beatons can help with getting this in place.”

“This way, you can take appropriate and timely action based on your interpretations of the data – and in the long run, this may cut your chances of needing to apply for finance at all.”

The report published by the ACCA found that small firms found late payment to be a ‘persistent problem’ in the UK, creating barriers for cashflow throughout supply chains and leading to adverse consequences for some businesses. Research revealed that late payments by large companies have the most detrimental impact on small failures, generating a ‘domino effect’ throughout supply chains.

Experts at Beatons advise a review of cash flow management if your business is at risk of suffering these impacts.

Stephanie said: “Cash is the lifeblood of a business. Of course, the bottom line is important, but poor cash flow management can drive even a profitable company out of business, especially if the economy is struggling.

“The risk is especially great for new and expanding businesses. For example, if billing is delayed at the same time as stock is accumulated to fulfil increased orders, you can find yourself short of the cash needed to pay suppliers and employees.

“A properly prepared cash flow projection can help a business foresee and prepare for potential shortages and surpluses.”

Cash flow feeds directly into budgeting – helping assess the need for any loan injection ahead of time. Once you’ve projected your cash flow based on this forecasted data, you can budget for capital expenditures, unusual sources of cash or other things that might affect cash flow.

Stephanie added: “While it can be tough out there, going back to the basics and reassessing how your businesses deal with cash flow forecast could help you manage debt more effectively, maximise your return on excess cash and ensure that funds are available when they’re most needed.”

Beatons has decades of experience in profit and loss forecasting and cash flow management and can support your business in driving up these reporting areas for the best possible results.

Get in touch with the Beatons team at info@beatons.co.uk or call 01473659777.