As the most unpredictable element of a running a small business, cash flow inevitably presents an ongoing challenge. And it’s a common problem whether the business is still in its infancy or tackling ambitious growth plans.

For businesses in either of these stages, day-to-day operations can be erratic, sales not always consistent and resources scarce. The sheer effort required to make sure you are functioning to at least meet demand means that it can be difficult to also produce, and deliver to, a monthly sales forecast as well as predict any likely losses.

And with 80-90% of businesses failing as a result of poor cash flow, not addressing and stabilising any associated issues early can affect the long-term potential of your company.

The value in keeping your cash flow under control can therefore not be underestimated, it is the centre point of any long-term business strategy.

But the ‘newer’ options for tackling cash flow need to be better understood.

We’ve got some covered in our blog ‘Our family business has a cash flow problem, are there any alternative finance solutions?’

Since the financial crisis in 2008, there has been a gradual realisation that there’s more to finance than just the banks. At the same time as they have become a more risk averse source of funding, alternative finance providers have taken advantage. And this has helped many small businesses to successfully wade through the standard cash flow dilemmas.

One of the key benefits of sourcing alternative finance is the speed at which it can translate to money in your bank account, however there is a cost. Whilst the lending criteria of banks continues to be rigorous and largely inflexible, alternative finance providers are more amenable and willing to consider a wider, riskier range of investments.

Irregular cash flow is suddenly less of a problem. As long as you are in a position to demonstrate a consistent and sustainable income, coupled with the ability to make routine repayments, you’ll be in with a chance of securing some funding.

And in comparison to applying for a bank loan, which can be a lengthy process, alternative lenders can provide approval quickly – often within 48 hours, but sometimes the same day. This makes it an ideal solution for a small business, especially one seeking short-term funds to plug a temporary cash flow gap.

In fact, most cash flow scenarios, although largely unexpected, are not for the long-term. Something as simple as a late-paying customer, or an unusually large sales order, are often the catalyst and just require a quick remedy. In some situations, it’s even possible that single invoice finance or selective invoice finance might be the only solution required.

The rigidity of a bank loan is based upon a fixed amount over a given period, with regular repayments until the debt is fully recovered. This can be over-complicated and unnecessary when funding is literally required to tide a business over from one month to the next. In fact, avoiding a trip to the bank altogether is a huge benefit to small businesses with a primary focus on the day-to-day running of their operations.

And this too has contributed to the increased take-up of alternative funding solutions like peer-to-peer lending, crowdfunding and asset financing, all of which are easily accessible on-line. Such streamlined application processes have undoubtedly given way to simpler submissions, increased flexibility and more favourable terms; finance is literally more accessible in the alternative arena.

In fact, the UK online alternative finance market volume rose by 35% in 2017 to £6.2bn, according to the Cambridge Centre for Alternative Finance.  Other research similarly showed crowdfunding platforms in particular have seen an increase in awareness from 13% to 60% in the previous 5 years from 2018. And peer-to-peer lending platforms from 24% to 47% over the same period.

It really has opened up a finance avenue that small businesses are just starting to tap into more and more.

Not only do people feel less pressurised in an online situation, it’s easier to factor in applying for finance if you don’t need to leave your office. But don’t underestimate the preparation you still need to do to ensure your business is investor ready. Both traditional and alternative funding providers will need to see the same basic groundwork including:

• Filed accounts for the last financial year
• Management accounts for the year to date
• Bank and VAT statements
• Details of any existing loans and personal guarantees
• Aged debtor and creditor reports

It isn’t, however, a long-term strategy to keep your cash flow under control by repeatedly accessing external finance; the funding dependency is not a good strategic move. You should instead consider your credit management processes and how they alone can stabilise the money, and its frequency, into your business.

Read our blog ‘Your cash flow is only as good as your credit management’.

If you’re looking to grow your businesses and need some advice on how alternative finance solutions could help to get your cash flow under control first, speak to one of our advisors.