A new business survey has uncovered a worrying hole in SME financial planning, resulting in many seasonal firms turning to bank overdrafts and invoice finance to counteract cash flow constraints as sales fluctuate across the year.
When it comes to seasonal business success cash flow forecasting is king. That’s why the latest results of MarketInvoice Business Insights survey are so alarming. In a survey of 1,000 UK SMEs it found that of the 27% affected by seasonal demand, the majority (54%) are failing to check their cash flow forecast on a regular basis – despite feeling a cash flow squeeze.
Seasonal firms are affected by peaks in business activity due to a range of outside factors. This includes seasons of the year, school holidays, the weather, and cultural or religious dates.
The survey identified the key challenges faced by seasonal SMEs as –
- 23% Staffing – Increasing staff in order to fulfil orders
- 22% Suppliers – Paying suppliers
- 72% Payment terms – Seasonal businesses are more likely to sell to large corporate customers. They’ll be waiting, on average, 80 days to be paid
Jonathan Allan, CMO at MarketInvoice, commented: “In meeting seasonal demands, businesses are preparing 3 months in advance and then waiting almost a further 3 months to get paid. It’s worrying to see them so stretched. Regular and significant peaks or troughs in revenue are tough to manage, but it’s possible to smooth the impact. Being prepared and using all the finance tools available is the key to managing seasonal demand.”
At Oscar Fairchild we’re concerned that so many businesses (84%) said they were unable to take on more orders because of cash flow constraints, and that growth is being prevented. To counteract this many turn to increased bank overdraft facilities as a way to manage seasonal demand (48%) and one in six use invoice finance (16%).
The one positive statistic we uncovered was that 67% of business owners admitted they haven’t sought any advice about seasonal spikes in trading.
That tells us there is plenty of room for significant improvement.
Kim Redwood-Lee, managing director at Oscar Fairchild, said: “The key is starting a conversation with an experienced accountant, early. Startup businesses, and young entrepreneurs in the early stages of setting up a small business are often caught out, but there are also many established seasonal businesses who have become so used to the highs and lows of trading that they’ve started to consider ‘firefighting’ the norm.
If your business is often hit by a cash flow squeeze there are changes you can make to smooth the path ahead.
Cash flow forecasting improvements
Kim advises –
- Focus on management accounts
Management accounts should be more than an unopened manila envelope, languishing in the bottom of a desk drawer. Work with your account to track the time and money you spend, department by department across seasonal fluctuations. Allowing you to identify value, predict the future of your cash flow, take early steps to navigate challenges, and ensure the upturn in business leads to sustained healthy growth.
- Don’t rely on unskilled staff
Research by the Association of Accounting Technicians (AAT) showed that small and medium sized businesses were losing around £15,000 a year on average because of poor financial management. To a growing start-up that could mean the difference between survival and total failure. If you’re a seasonal business, it’s even more important to ensure cash flow forecasting and financial management has expert help to steer things in the right direction. Read more about this in our recent blog >>
- Run regular debt heath checks
For business affected by seasonal fluctuations it’s vital that cash flow is kept within safe limits. Put in place streamlined systems to accurately maintain your firm’s sales ledger, send regular customer statements and chase debt. Be firm when it comes to managing the process of credit checking potential new customers and run regular business debt health checks to ensure you’re not caught out by a painful cash flow squeeze. We’ve got more on credit control here >>
About Oscar Fairchild:
Oscar Fairchild (incorporating Redwood Clarke since 01.09.18) is an ACCA chartered and certified and AAT qualified accountancy & bookkeeping practice with offices in The City of London, and Billericay, Essex. Offering a wide range of services including Self-Assessment Services, Annual Returns, VAT Returns, Credit Control, Payroll, Auto Enrolment Pension and Management Account services to high growth businesses across London, Essex and Hertfordshire.