How Yorkshire's SMEs can get their finances into shape - Steve Harris

There is uncertainty about what the next few months will bring and, for the region’s SMEs, there is concern that these conditions could place further pressure on already stretched finances. In fact, our latest Business Barometer revealed that overall business confidence in the region has dropped for the last four months in a row.

Fortunately, there are some simple tools available to businesses to ensure they are best positioned to build resilience and protect growth. And while every company’s approach must be tailored to meet its specific needs and circumstances, there are some general steps that every SME can follow to give them the best chance to prosper.

Focusing on strengthening cashflow and ensuring effective working capital management are essential steps for every business to ensure their finances are fighting fit.

Firms must be realistic about any potential risks on the horizon, so they can put in place robust contingency plans and streamline their operations where appropriate.

Conserving cash, finding ways to reduce costs and overheads, and having an effective pricing strategy should be a priority for management teams.

Closely managing working capital can not only help firms to respond to immediate short-term challenges as soon as they arise, but also lays the groundwork for important strategic decisions to be made rapidly.

There are a number of funding options available to make sure that fluctuating demand doesn’t have a damaging impact on cashflow.

Financial products such as arranged overdrafts and corporate credit cards can help to manage short-term working capital needs and cashflow pressure points forming in a company’s operations. And for larger companies, or those with long-term cashflow requirements, tools like invoice finance and asset-based lending can be invaluable finance solutions.

Invoice finance allows firms to access up to 90 per cent of the value of an invoice within 24 hours of it being issued. The lending amount increases with the value and number of invoices a business sends, creating access to extra cash to manage increased seasonal demand. This guarantees that funding will be available even if a third party has taken time off for summer holidays and is late with payments, for example.

Asset-based lending allows firms with capital tied up in existing stock, plant and machinery, or property to release cash from these assets, which can then be used to make investments elsewhere, such as in stock and new materials.

For many new and smaller trading businesses, understanding and forecasting how working capital can ebb and flow can be daunting. But there is help at hand.

With the right support, businesses can quickly and easily assess their chances of over or under-trading, allowing them to build the most effective plan of action. Lloyds Bank’s working capital management tool can help companies to identify cashflow pinch points, with dedicated relationship

managers on hand to analyse the working capital cycles of businesses and assess financial opportunities and challenges, allowing them to provide bespoke advice.

There is no doubt that the months ahead will bring challenges, but there will also be opportunities for those businesses that are quickest to react. With the right preparation, firms can ensure they are best equipped to tackle whatever is thrown at them.

Steve Harris is a regional director for Lloyds Bank in Yorkshire