How SMEs Can Overcome Financial Restraint

Real Business Rescue’s Keith Tully explores some of the most common financial issues you might have to deal with as a business owner and how to overcome them

By Keith Tully

Business owners face significant challenges throughout the lifetime of an enterprise, but few are quite as demanding as intermittent and ongoing financial difficulties. Keith Tully examines some of the most common financial difficulties examples and share tips on how to overcome financial challenges to protect your business from financial restraint.

Poor cash flow

Cash flow is the money moving in and out of your business. Without positive cash flow, any business is in serious danger of being unable to pay bills as they fall due. This can be particularly damaging if you don’t have enough cash reserves. Even if your business is profitable, poor cash flow can lead to financial difficulties.

Poor cash flow is, therefore, particularly problematic for smaller businesses. However, making regular cash flow forecasts can help you regain control of your cash position. Accurate cash flow forecasting requires precise knowledge of how much you're spending, including a clear understanding of your cash needs in the short term as well as over a longer period.

This information will reliably inform you of potential cash shortfalls in the future and give a solid base for sustainable growth.

Access to funding

Securing funding can be a major challenge. Financial restraints may include:

Low business loan approval rates by high street banks and an often long application process. Both of these seriously limit your access to ‘traditional’ finance.
The need for personal guarantees is also a difficult issue to deal with if you’re a limited company director, as your personal assets are placed at risk.
Some lenders may use your personal credit rating and the information in your credit file to indicate the risk posed by the business.
Excessive penalties can be applied for early repayment of business loans.

To overcome financial barriers, finance products that offer faster application processing and approval, and generally greater flexibility, may be more suitable and offer a strong alternative to high street borrowing.

Online lending, invoice finance, and merchant cash advances are just a few alternative funding options now available to businesses. Crucially, these offer inherent flexibility allowing you to the freedom to plan strategically and with more confidence.

Customer late payments

As of 2023 the UK has, on average, some of the longest payment times terms in Europe.

Late payments are a big problem for business owners. They can impact cash flow and stop your business from growing. When customers pay late, it makes it hard for you to pay your own bills on time. With 1 in 5 insolvencies being attributed to late payments, it's important to have good systems in place to manage this.

Make it as easy as possible for your customers to pay you. If you don’t know when you’ll get paid, it’s hard to plan for the future.

Luckily, there are ways to ease the stress of late payments. You can:

Use automated billing
Make your payment process simpler
Consider cash flow finance
Set up a credit control system to keep track of everything.

Cost control

Even a small increase in costs or an unexpected bill can hurt your cash flow. Many businesses panic and raise their prices to cover the costs, but this can backfire and make you less competitive.

This is a tough problem, especially for small and medium-sized businesses that don’t have a lot of working caital to handle rising costs. So, what can you do?

Even if your expenses stay the same each month, it’s important to keep a close eye on them to make sure you’re sticking to your budget. Look at each cost carefully to see if it’s really worth it. This will streamline your business and encourage profitability.

Reliable financial information

Without reliable financial data, it’s impossible to know how much tax you owe, if you have enough stock, or even if your business is making a profit.

Understanding financial reports and data can be tough, especially if you’re not tech-savvy. But these reports are crucial, and play a key role in the decision-making process. They give you a clear picture of your business and help spot problems that could lead to a financial decline.

Handling financial issues can be hard, but if you stay proactive and carefully monitor the figures, you’ll stand the best chance of averting a crisis.

About the Author

Keith Tully is a partner at Real Business Rescue, part of Begbies Traynor Group plc. Keith has more than 25 years’ experience advising company directors and shareholders on a range of business matters including cash flow concerns, creditor pressure, and raising finance.

Your common questions answered

What are common financial difficulties examples for SMEs?

Common financial difficulties examples for SMEs include:

Poor cash flow
Difficulty accessing funding
Customer late payments
Rising costs

How can I overcome financial challenges in my business?

To overcome financial challenges, you should:

Create regular cash flow forecasts
Explore alternative funding options
Streamline customer payments
Closely monitor expenses

What does financial restraint mean in business?

Financial restraint refers to the limitations or challenges a company faces in managing its finances, such as a lack of funds or high operational costs.

What are the steps to overcoming financial difficulties?

Overcoming financial difficulties involves:

Identifying the problem areas
Creating a plan to address them
Implementing solutions such as better cash flow management and cost control.

What are the key strategies for overcoming financial problems in business?

Key strategies include:

Accurate financial forecasting
Exploring flexible funding options
Effective cost management
Ensuring reliable financial information.

How can I handle late payments from customers?

To handle late payments, make it easy for customers to pay, use automated billing, simplify your payment process, and set up a credit control system to keep track of payments.

What can I do to control rising costs in my business?

To control rising costs, keep a close eye on your expenses and make sure you’re sticking to your budget. Look at each cost carefully to see if it’s really necessary, and avoid raising prices if possible.

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