By Gareth Rees, below, Product Director of Business Information Services, Experian UK&I
As we head into the winter fresh off the back of the Chancellor’s Autumn Statement, the imperative for small businesses to build strong financial foundations has never been more important.
While some tax incentives to support businesses have been retained, the absence of any major new announcements and the potential for an earlier than expected election next year has tempered growth expectations. This means that uncertainty in the economy remains. However, there are also small signs of optimism with an increase in the creation of small businesses especially in the retail and hospitality sectors this year. In order to successfully navigating the business landscape in 2024, small businesses will require foresight and preparation. Owners must arm themselves with the knowledge and tools to prepare fully and ultimately adapt and set their businesses up for financial success in 2024 and beyond. With that in mind, here are three key tips for small businesses to follow.
Dedicate time to your credit score
One crucial aspect often overlooked is understanding your business credit score, which is the measure of a business’s creditworthiness Not only do potential partners and suppliers conduct credit checks, but a low score increases financing costs and limits investment potential. This all impacts the overall financial health of your business. Dedicating time to improving your credit rating is therefore essential. The first step is to check your company credit score and report any incorrect or out-of-date information. If the information in the credit report is correct but still causing problems, it needs to be repaired. Sort out any inconsistencies, such as different addresses on accounts. Also, use a landline as a contact number rather than a mobile as it shows a more stable position. Critically, it’s good practice to be up to date with bookkeeping and ensure that you file on time with Companies House. Late filing not only incurs an automatic penalty but can have a detrimental impact on your credit score.
Practice good cash flow management
There are numerous benefits to understanding your cash flow. Ultimately, small business owners need to know how their business tracks at all times, understanding both income and expenditure, whilst also maximising working capital.
Regular reviewing of cash flow will enable small businesses to think about longer-term success and overall business growth. Many rely on predicted monthly income to ensure their financial commitments are met, and if for example, a sudden shock to their cashflow occurs, such as the late payment of a large invoice or a supplier going out of business, it could damage company finances, having the adverse effect on the business’ financial health.
A business credit score also plays a key role in cash flow management. The higher the credit score a small business has, the higher the credit limit which might prevent a small business having to pay up front for all of their goods and supplies which would impact cashflow levels. A strong credit score also helps secure better and longer payment terms too.
Don’t forget about the timing of your payments
Timely bill payments play a pivotal role in enhancing your business credit score. Building up a positive payment history demonstrates to prospective lenders that your company is a responsible organisation to conduct business with. Businesses often share sales ledger information with credit reference agencies. Late payments, on the other hand, regularly catch out small businesses. Non-payments can damage company finance and have an adverse effect on an organisation’s financial health. This could include the ability to pay suppliers and even secure credit.
Looking ahead
As small businesses chart their course for 2024, strong financial foundations will not only set businesses up for the year ahead but will also set you on the path to success for the long term. Make sure you take the time to invest in your finances and prove that your organisation is dependable and creditworthy.
