Many UK start-ups fail because they run out of cash to cover their expenses, even if sales are strong.
Even businesses with healthy order books and rising revenues can quickly find themselves up against it if their cash flow doesn’t keep up with their ambitions.
Accountants such as Sysum Howard Duggan play a vital role in helping scale-ups recognise, anticipate and manage the financial pressures of growth.
In this months’ blog, we’re sharing some wise words from the Institute of Chartered Accountants in England and Wales (ICAEW) about the possible pitfalls of scaling up – and how to avoid them.
Beware overestimations – Scaling usually means higher spending, including salaries, office space, tech and supplier contracts. Without control, this can lead to problems.
It’s essential to put management processes into place early. Use historical data to benchmark spending, negotiate with suppliers and regularly review variable and fixed costs. Establish budget owners across teams or departments, require pre-approval for discretionary spend and track variances every month.
Create a regularly updated cash-flow forecast. This should project inflows and outflows on a rolling 13-week basis. A separate cash flow management statement can help summarise major risks, upcoming obligations and contingency plans.
Economic uncertainty – During times of economic volatility marked by high interest rates, inflation and fluctuating consumer confidence, even well-established companies can experience cash flow shocks.
For scale-ups, growth often means investment in staff, infrastructure and marketing before the corresponding revenue materialises. Any slight delay in cash inflow can soon spiral into a liquidity crisis.
Most experts believe that the best approach is to go for high growth, but do it in a sustainable, carefully prepared, well-planned manner.
Poor payment terms – Late payments are a major burden on small businesses in the UK, estimated to cause 50,000 business closures and costing £2.5 billion annually. According to the Federation of Small Businesses more than half of small businesses suffer from late payments, jeopardising their cash flow.
It’s vital to establish clear credit control procedures, set out payment terms upfront and offer incentives for early payments. Don’t be shy about making prompt follow ups on overdue invoices.
Accountants can bring clarity, discipline and foresight to scale-up finance. By helping clients avoid common cash-flow obstacles and embed strategic financial planning into their growth plan, they can become not just advisers, but enablers of sustainable growth.
Allow Sysum Howard Duggan to accompany you on your business journey and guide you over any bumps in the road. Call 01905 622202 to start the ball rolling.