The flexibility of targeted cash flow finance helps cash
strapped businesses outperform users of more traditional forms of
finance, writes Hilton Baird’s Evette Orams
Despite a more positive macro
picture, it is an unfortunate fact that the financial health of
many UK businesses has deteriorated during the six months leading
up to April 2011. This is partly due to businesses being faced with
a surge in operating costs and a fall in new orders, as suggested
by the latest SME Trends Index from Hilton-Baird Financial
Solutions.
Go deeper with GlobalData
The twice-yearly survey provides
a comprehensive picture of the challenges faced by UK SMEs
currently and reviews a range of variables, including bad debt
levels, tax arrears, turnover and profitability, in order to
calculate the financial health of UK firms through the Business
Health Index. Findings revealed that the financial wellbeing of UK
businesses has declined as the overall Index fell to 0.35 from the
0.49 recorded last November – this despite the positive economic
growth recorded in the first quarter.
On closer inspection the
situation appears to be more concerning. Of the 576 business owners
questioned about their business’ finances and growth prospects, a
staggering 76% reported a rise in operating costs during the
preceding six months while only 58% of those questioned won new
contracts, causing the overall Index to fall considerably since the
previous survey.
It is therefore unsurprising
that business confidence has taken a major hit as a result. Many
businesses have expressed concern over their growth prospects, with
only 33% expecting their business to grow in the following six
months – a considerable decline from the 45% recorded last
November. Over a quarter (28%) are primarily concerned about
generating and winning new business during this period, with a
further 17% anxious about the rising cost of fuel and new materials
and 15% also worried about managing cash flow.
With numerous business concerns
in mind, the importance of securing the most suitable and reliable
funding solution is paramount. A tailored facility will ensure that
your business has the ability to maximise opportunities when they
arise whilst protecting the business against common pressures, yet
overdrafts and credit cards remain the most popular methods of
funding among SMEs and are currently used by 44% and 42% of
respondents respectively. 
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By GlobalDataConversely, asset finance (25%)
and invoice finance (21%) solutions are used by significantly fewer
despite the study finding that users of targeted cash flow finance
fare much better than those who solely rely on more generic,
traditional sources of finance, perhaps as a result of the flexible
and targeted cash flow support such solutions typically
provide.
For example, the Business Health
Index revealed that asset finance (0.70) and invoice finance (0.62)
users considerably outperformed those using credit cards and loans
from family and friends (0.23) and bank overdrafts (-0.05) to fund
their business. Further, while 52% of invoice finance users and 47%
of asset finance users reported a rise in turnover over the same
period, only 40% of those using credit cards and loans from family
and friends and 37% of overdraft users were able to boast the same.
Similarly, while profitability rose at 41% of both invoice finance
and asset finance users, just 33% of those using credit cards and
loans from family and friends and 30% of bank overdraft users were
able to report the same good news.
As a result, asset based finance
users were more optimistic about their business’ future. The
research showed that 41% of invoice finance users and 39% of asset
finance users expect to grow over the next six months compared to a
lower 36% of credit card or loan users and 33% of those using bank
overdrafts.
These figures serve to emphasise
the benefits of asset based finance solutions and show the crucial
support they can provide businesses. The latest Asset Based Finance
Association (ABFA) and Finance Lease Association (FLA) statistics
further demonstrate how these forms of finance are very much
available to businesses of all sizes and highlights the various
benefits of asset based finance as a vital funding tool during
uncertain times.
It is possible that the majority
of SMEs are sticking with more traditional funding options due to a
fear of the unknown or simply a lack of awareness to the other
options available. Given its flexible nature, invoice finance can
supply users with the necessary cash and a facility which grows in
line with the business – provided they are using the most suitable
facility for their business.
Independent commercial finance
brokers are an important resource when investigating suitable
funding options. Their knowledge and ability to successfully match
individual businesses’ cash flow needs with the most appropriate
funding facility can ensure that a business reaps the rewards in
the future.
