Getting SMEs ready for the year ahead

For small business owners, the start of a new year is a valuable opportunity to take stock and to plan ahead.

And there are many practical efforts SME bosses can make to ensure their businesses are efficient, improving, and profitable over the months to come. Here are our top tips for financial health in 2018.

Learn from 2017

How did your business perform during the last year, and what might have been done better?

• Undertake a thorough review of financial statements of the past 12 months, scrutinising profit and loss figures, plus sales peaks and where sales were in decline. Ask yourself what caused these fluctuations, whether they were inevitable or seasonal, and if you could have planned better for them.

• Analyse stock levels and turnover to see if inventory management is up to scratch.

• What does the detail of the company’s revenue versus expenditure during 2017 tell you? Where was money wasted?

• Remember your business plan and the objectives for the enterprise at the beginning of the year, then admit what goals were met, what targets were missed, and why.

Make savings

A thorough audit of the business should have revealed where cost savings might be made.

• Energy supply is one area where SMEs waste huge amounts of money because many never check to see if they are on the best tariff. It is estimated that British SMEs are paying as much as £7 billion more than necessary on energy bills, so check on comparison websites, such as uSwitchforBusiness or Makeitcheaper, for a better contract.

• The Government also offers small business owners tips on improving energy efficiency in the workplace, installing energy efficient equipment and turning off unused items out of hours to save money.

• If you rent premises, look at the terms of the agreement to see if you might negotiate a better deal with the landlord. Revisiting contracts with suppliers may also bring possible improvements to light.

• Finally, look at the company’s bank statements of the last year to see if you are paying any needless bank charges – they can lie hidden, and soon add up.

Watch the competition

Researching industry peers’ successes and failures is one of the most valuable exercises you can undertake.

• Take a fresh look at the products, services and marketing of your competitors to see what works for them – and where their points of weakness lie.

• Do as a customer would do and search online for key phrases that relate to your business. Who comes to the top of search rankings in your area and further away? This may inform your marketing and SEO efforts to get you closer to the top of that list in 2018.

• When identifying the competition, consider the larger businesses operating in your field. Investment in IT can allow even small operators to compete with large entities, so aim high to offer a better, more innovative, and nimble service than bigger rivals.

• Review your marketing message and how it is reaching customers – social media, e-shots, and more traditional marketing methods – to see if it is really yielding results.

Gear up for growth

Brexit and a bumpy economy may have unsettled business owners, but many are still planning to grow in the year ahead. More than half – 55 per cent – of UK entrepreneurs expect to increase their revenue by 50 per cent or more over the next 12 months, EY research shows, and a quarter intends to swell their company’s headcount.

Uncertain times can yield great opportunities – there could be the chance to win new business from those looking to save cash by changing suppliers or shopping around for the best deal.

• Ask yourself who may find your product or service attractive or necessary. Might there be a new market ready to be exploited either by extending your promotional efforts, or diversifying into a new product or service to meet an emerging need?

• Think long and hard about how you may fund any growth plans. SMEs may prefer to use existing savings, but external business finance will be necessary for many, and that can be hard to come by in the current climate. Research all options – bank lending, alternative lenders, invoice financing, or business angels and investors – to see whether your ideas can find the financial backing to get off the ground.

Improve cash flow

The old adage cash is king may sound cliched, but it is an undeniable truth in business. Good cash flow management is essential to the healthy running of an enterprise, and a lack of money flowing into company coffers can cause serious damage – more than half of firms say cash flow-related problems are hindering their growth, a recent study has shown.

• The Institute for Credit Management offers tips for business owners on managing cash flow, including using accounting software to issue invoices promptly and track accounts, and credit-checking potential new customers to spot late payers.

• Cash flow forecasting is also essential – annually, monthly, and sometimes even weekly – to predict projected income and expenses. Again, IT packages can undertake this exercise regularly, so SME bosses never face an unwelcome surprise.

• If working capital looks like it will be lacking, it is possible to take steps - slowing sales growth and consolidating the business’s efforts - until the company’s financial situation improves.

• Getting invoices and money owed paid on time is crucial to healthy cash flow, which leads us on to…

Get paid on time with Direct Debit

Late payment is a real threat to smaller companies, killing about 50,000 SMEs every year, according to the Federation of Small Businesses. At the very least, chasing debts takes valuable time away from the running of an operation. Responsible companies will take measures this new year to limit their exposure to those who fail to pay their bills.

• Credit-check potential new customers.

• Introduce electronic invoicing to deliver invoices swiftly.

• Review your company’s payments terms and credit policies, and even think about shortening agreed payment periods if appropriate. Then, make sure customers understand what is expected of them to avoid awkward conversations later.

• Consider introducing processes that guarantee payments are delivered promptly and that reduce the chances of payment failures. Direct Debit is a useful option, allowing SMEs to take money from customers’ accounts as soon as it is owed, removing the need to chase payments at all. Direct Debit payments are fast, efficient, and available to SMEs through providers like GoCardless. Using it, SMEs should find that late payment becomes a thing of the past.

Read more in our guide to setting up Direct Debit for Small Business

It may be far from clear what will happen in the course of 2018, but the fundamentals of business remain the same – give customers what they want, remain critical, alert, and adaptable, and get paid for the job done.

We at GoCardless wish all our SME customers a happy new year, and the best of luck in the months ahead, whatever surprises they may hold.