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With uncertainty ahead, what can you do to future proof your business?

By Richard Pepler, CEO of Optimum Finance

The economy is growing at its slowest rate for six years while business investment actually dropped throughout 2018, according to government figures – the first time it has fallen for four consecutive quarters since the economic downturn in 2009.

There are no prizes for guessing why. Brexit uncertainty is stifling our economic growth as businesses halt big investment decisions until they know the outcome of the negotiations.

It would be very helpful if our bickering politicians were able to provide the business sector with some level of assurance. But, since this doesn’t look likely to happen any time soon and the possibility of the UK crashing out of Europe with a no deal remains firmly on the table, businesses are best advised to think about how they can protect themselves from future economic bumps in the road.

Of course growing businesses should always think about future proofing themselves but during times of optimism and economic growth, it is easy to assume nothing can go wrong. No-one is in danger of that assumption right now, so what can business executives do?

Protect cash flow

The most important step to ensuring your business can weather any Brexit storm is ensuring your cash flow is adequately protected.

We all know most businesses do not fail due to a lack of orders but due to a lack of ready cash. Last year we carried out a survey of business owners and senior managers and 10 per cent of respondents said cash flow had been a cause for concern in the last year of trading.

Managing cash flow in a small business can be tricky as SMEs often grapple with balancing late payment against growing order books.

But there are easy steps you can take to ensure you cash reserves do not run out.

The traditional route was to borrow from banks but they have tightened their lending requirements and are not always sufficiently flexible for the needs of fast growing SMEs. Happily, there are now a wide range of other funding options which provide fast flexible finance solutions.

Invoice finance enables SMEs to draw cash out against the value of their unpaid invoices when they need it to provide working capital which can be used to reinvest in growth strategies. Where wanted, lenders will also take over credit control, removing the stress of chasing down the unpaid invoices, saving staff time and ensuring payment is secured.

An invoice finance facility can be seen as an emergency reserve or back-up you can turn to if any of your usual revenue streams get cut. If you do not need it, you continue to trade as normal. It’s a fast, flexible and often cheaper form of funding which, when you take into account the removal of salary and associated costs for someone to chase invoice payments, credit referencing and access to money owed, the actual cost to the business can be negligible and often even deliver savings.

Companies reliant on exports, or imports, to or from Europe are in a particularly precarious position since no-one yet knows how the border changes may affect the delivery or arrival of goods and components.

This is where a healthy cash reserve could prove vital to see you through any adjustment period or tide the business over if there are delays or temporary breakdowns in trading.

Manage growth

While growth is a generally positive thing for any young business, beware overtrading. This would be particularly dangerous at a time of uncertainty when there is an increased risk of your customers paying very late or even defaulting on their debt.

So, ensure you grow in a measured and sustainable way.

Comprehensive due diligence must be carried out on any new customer and robust payment terms agreed.

Think about how you are going to fund the growth – from employing new staff to buying in new equipment or renting larger premises, growth often requires ready capital.

But first, you must make sure you have a full understanding of the business’s financial status by making use of key planning tools such as cash flow forecasts. Worryingly, in our survey of SMEs, we found a fifth of the businesses questioned could not predict what the financial position of their company would be in three months’ time.

With sensible financial planning, you can decide how far to stretch budgets then work with a lender to protect cash flow or unlock capital when needed to grow sustainably.

Debtor protection

When the future is not looking so bright, it is a sensible move to take out debtor protection. This will insure your debtor books so if customers do not pay their invoices on time or stop trading, the insurer will cover the outstanding debt.

Just be aware there are some common mistakes companies make when signing up for debtor protection which undermines the whole process, leaving them very exposed.

The key one is ensuring you read and fully understand all the terms and conditions so that you do not breach the agreement and check that you list the correct incorporated names of all the businesses you trade with – not their trading names. For safety, we always advise using a registered number alongside the company name when writing a contract.

Once the contract is signed, don’t trade outside your credit limit as the insurance will be calculated based on this and don’t continue trading with a customer if their account is far overdue as insurers will not cover ‘reckless’ trading.

The last thing to think about is how long it may take for a claim to be paid, which brings us back to why a reliable invoice finance facility is important, to tide you through any shortfalls.

Clearly, we’re all trying to remain hopeful that our politicians will reach some sort of agreement ahead of 29th March and that none of this advice will be needed, but as ever, better to be safe than sorry.

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