New Year is crucial time for cashflow

With recent economic data showing that Britain is still in the grip of a recession, and many commentators stating that signs of recovery won’t appear until spring 2010 at the very earliest, business owners must ensure they have enough financial liquidity to keep the business afloat. This will allow them to focus on survival and ensure they are in best possible shape for the year ahead.
Bibby Financial Services’ Business Factors Index, which reveals key findings about the UK economy and small businesses, shows that the final quarter of 2009 and the start of 2010 will see trading conditions worsen. This compliments statistics published earlier this year showing that slumping demand for British-made goods, coupled with difficulty in accessing finance, forced 38 per cent of SME manufacturers to cut jobs in the three months to January 2009.
Edward Rimmer, chief executive of Bibby Financial Services, the largest, non-bank provider of invoice finance to businesses in the UK, said: “January is a crucial month for businesses and it can often be make or break. With large amounts of excess stock from Christmas often left over, financial liquidity can take a big hit as cash flow is tied up in unsold stock, and many customer invoices are left outstanding.”
“We would urge small businesses to ensure they do not build up their stock levels more than is needed in anticipation of the Christmas rush. This will ease pressure on their cash flow in order to ensure vital commitments are met, such as paying their staff, meaning fewer businesses will be forced into making redundancies as a cost-saving measure.”
Research shows that forced redundancies are not the only issues small businesses encounter during the month, with many being pushed into liquidation. Indeed, January 2009 saw a 78 per cent surge in business failures.
Edward Rimmer continued: “During these challenging times, it’s hardly surprising that business owners are continually exposed to the threat of business failure. Although interest rates are low, which should stimulate trading activity to a degree, businesses really feel the pinch after Christmas and many ensure they are as frugal as possible during the first few months of the New Year.
“We know from our own Business Factors Index that trading conditions during the first quarter of 2010 are set to worsen, and we would urge businesses to tighten up their processes to ensure that invoices are sent out promptly and correctly in order to keep the cash flowing and to consider renegotiating terms with their suppliers to ensure they are getting the best deal – perhaps by negotiating longer credit terms or flexible ‘sale or return’ deals that allow unsold stock to be returned.”
 “Although January is always a testing month for businesses, it is not all doom and gloom. The weakness of Sterling means that many businesses are seeing an increase in overseas trade, and this can only have positive ramifications all round.”