| Red warning lights on SME finance |
| Tuesday, 18 August 2009 01:52 |
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Financial tips for SMEs from the Institute of Chartered Accountants.
Financial tips for SMEs from the Institute of Chartered Accountants. Bosses must take notice of warning signals that could indicate problems ahead for their business, says Clive Lewis, head of enterprise at the ICAEW. He has identified ten red warning lights that should not be ignored:Overheads are increasing faster than profits. This might be a planned increase due to new premises or extra staff, or it might be unexpected. Monitor overheads, whatever their cause, on a monthly basis and do not let them get out of hand. There’s no available up-to-date management or financial information about the business. Keep up-to-date records of every business transaction from profit and loss to staff wages in order to review performance. Update your business plan or targets regularly, based on the latest available information. Suppliers are not being paid and the bank won’t lend money. If you have cash flow problems talk to your bank immediately. Contact suppliers and try to negotiate easier payment term that you can realistically manage. Tax deadlines are missed. Contact the authority concerned immediately. You may be allowed more time to pay or to make ad hoc or monthly payments. Your cheques are bounced. It is vital to speak to the bank to find out why and what can be done to resolve the problem. Customers haven’t paid you for more than three months. Make sure you have adequate invoicing procedures and that your payment terms are clear. You may need to take further action if contacting the debtor doesn’t result in payment. Vet new customers using credit checks. Sales are lower this quarter than the same quarter last year. Are your prices too high? Are you facing greater competition or shrinking demand? Research the market to find out what is happening. If your business is seasonal you may want to look at ways to boost your business all year round. A key customer has been lost. Relying on a few big customers can put your business in jeopardy if one or more go out of business or stop buying from you. Research the market to identify ways to broaden your customer base. Staff are leaving. High staff turnover is expensive for any business. Listen to your employees’ ideas and concerns and try to keep them motivated and happy. It is impossible to take a holiday. Don’t keep knowledge of the business to yourself. Train others to manage while you are away and your business will be more resilient in times of planned, and unplanned, absence. Clive Lewis said: “It is easy to turn a blind eye to the warning signals, or just fail to notice them day to day. But the more red lights that can be turned to green, the more chance a business has of motoring smoothly out of the recession.”
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