2.4m SMEs face cash flow time bomb

Suffer any substantial business interruption, and the clock is ticking – but how long could your company survive with no new money coming into it at all? Insurance provider Simply Business is warning that many managers might be misguided in their perceptions of their firm’s ability to survive without a source of income. More thanRead More

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Suffer any substantial business interruption, and the clock is ticking – but how long could your company survive with no new money coming into it at all?


Insurance provider Simply Business is warning that many managers might be misguided in their perceptions of their firm’s ability to survive without a source of income.

More than a fifth (22%) of those surveyed by the insurer said they think they could stay in business for at least six months without trading at all, for example if they were hit by a flood or fire.

Yet almost as many (20%) have no cash reserves in place for such an eventuality; 30% have less than £500 spare; and 52% have less than £10,000.

The average running costs for a company – even one that is not actively trading due to a business interruption – are around £20,000 per month, according to Simply Business.

As a result, the insurer says more than half of all small businesses in the UK would last just two weeks or less without their primary source of income.

CEO Jason Stockwood said: “Small businesses are still woefully under-prepared for unforeseen circumstances which will prevent trading.

“Small-business owners play a crucial role in the economic recovery, but we must ensure they are not existing so close to the brink.”

One way companies can insulate themselves against financial shocks is simply to maintain healthier cash flow, by invoicing promptly and chasing firmly for any incidents of non-payment.

In this way, you can bring more of the money you are owed into your company account – meaning it is there if you ever need it to help steer you through a period of business interruption.

And of course, substantial non-payment can represent an interruption to your earnings in its own right, making a focus on effective credit control a doubly profitable investment.

 

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