Cash flow is fundamental for any business, both for survival and future growth, but in today’s volatile economic climate, it can be difficult to keep on top of it all and maintain a positive cash flow. Research shows that demand is on the rise for cash flow finance, with those able to produce accurate financial forecast and learn from historic trends more likely to succeed in 2016.
Hitachi Capital’s data shows an increased appetite for finance with the total credit offered to business in the tax year commencing April 2015 totaling £841 million, up from £823 million the previous year. Lending figures also show three clear peaks in demand from SMEs for funding increases, with applications rising significantly in April, July and October on an annual basis.
Predictions are that “Business activity in 2016 is likely to be impacted by a number of external factors, in what is set to be a volatile landscape for political and legislative change”.
As the beginning of a new tax year and a time of new government legislation implementation, it could be a turbulent period for SMEs. The introduction of the new National Living Wage will mean an increased wage bill for many businesses; the national living wage will be £7.20 an hour for workers aged 25 and older, an increase from £6.70. A high proportion of these businesses are probably still bridging the transition into pension auto-enrolment.
April also means the commencement of new immigration laws preventing employees earning less than £35,000 per annum from staying in the UK for more than 5 years. Predictions are that this could worsen the current situation of UK skills shortage and lead to increased recruitment costs with longer time scales for firms looking to hire and retain talented staff.
Businesses need to take note of the impact of the holiday season of July and August and the negative effect on business continuity with limited trading activity and reduced ability to chase prompt payment possibly denting cash flow. With everyone booking summer holidays, the workforce could also be low and strained.
Surprisingly, the biggest peak in demand for cash flow finance happens in October as businesses start to prepare to capitalise and make the most of emerging contract opportunities. Although this period typically sees an increase in business activity and new contracts, it’s also a busy time for retailers to prepare and invest in stock for inflated sales for Black Friday and the run up to Christmas. For many, this time of year is a prime time for sales as well as investing and planning for the year ahead.
SMEs needs to pay close attention to their working capital during 2016 to make sure they have the cash readily available to react to unexpected market changes and to keep the business operations running as usual. An EU referendum and whether to leave the EU will be held on the 23rd June, alongside expected rises in interest rates impacting business confidence. In order for success and growth, firms need to manage and protect their cash flow well, either organically or through securing external finance.