How to avoid being in the 25% of SMEs who will go bust by 2024

Research has revealed that a quarter of UK small business owners think their company will go bust by 2024.

That’s a pretty grim outlook, and it’s supported by some equally grim statistics.

So, as an SME, should you be worried? And what can you do to avoid being a part of the 25% which are likely to go bust within the next four years?

What are the main threats?

The poll was carried out by cloud accounting experts, Xero, and revealed the following biggest concerns among the 500 owner-managers quizzed:

Late payments (54%)
Tax rates (44%)
Brexit (44%)
Boosting levels of productivity (31%)
Cyber-attacks (27%)
Recruitment costs (19%)

Of those surveyed, around a third claimed they were currently experiencing their most turbulent period. Some even revealed they were working an extra nine hours a week and paying, on average, £11,846 of their own money into the business.

But is it all doom and gloom?

A word of comfort from Xero’s co-founder

Xero co-founder, Gary Turner, offers some hope for embattled SME owners.

“The ways small businesses work now are dramatically different from the 1980s when the first personal computers arrived, but businesses need to adapt to greater changes coming their way,” he said. “New technologies will hasten a far greater consciousness towards the biggest killer of small businesses.

“Cashflow issues will decline as instant payment technologies take root as a cultural norm. I believe what we’ll see is 30-day payment terms going the way of the fax machine.”

Tips for effectively dealing with late payments

Every business owner will at some stage find themselves dealing with late payers. When kept under control, it should simply require the occasional chase. But if left to fester, late payments can become a big problem for cash flow.

Here are some tried-and-tested tips for dealing effectively with late payments and addressing the problem at source:

Run credit checks on new customers to identify whether there might be problems regarding payment. If they have a bad score, insist on payment upfront wherever possible.
Avoid cheques because they really are more hassle than they’re worth and there’s little excuse not to use BACS or Direct Debit payments these days.
Speak directly to regular late payers. Is something wrong? Their tardiness could be a result of being disorganised, but it might hint at a wider issue relating to their opinion of your products or service.
Claim interest. You have a right to do this on late payments and can do so at 8% above the Bank of England base rate. This remains a great deterrent for late payments.

Acting swiftly with late payers is vitally important. The longer you leave the chase, the more they’ll think they can get away with it.

Be flexible where you can, though; not every late payment is out of spite, laziness or anger. Your client might have genuine issues paying you, and it’ll reflect well on your business if you can be empathetic (to a degree!) and ask them if there are any reasons for their late payments.

Protecting your business from cyber attacks

Of all modern threats to SMEs, cyber-attacks are particularly feared. They can be silent, immediate and cause untold havoc if you’re a victim.

At some stage, your business might be subjected to such an attack, and while you can’t protect yourself completely, there are a few things you can do to mitigate any significant damage.

Start by working out what classifies as sensitive data in your business. Once you know the files that should be kept out of reach for anyone but those within the business, you can investigate ways to store them securely.

Staff education is also vital, because the weakest link in the cyber security chain is often the human. Invest in cyber aware training for your staff and consider obtaining the Cyber Essentials certification.

Simple ways to reduce recruitment costs

Recruitment can be a costly business and given that so many SME business owners are concerned about staff turnover, finding and keeping the best people should be a top priority.

For instance – have you considered introducing an employee referral scheme? It’ll require a bit of budget to be set aside for staff “thank yous”, but employee recommendations from existing staff can be very cost effective.

It’s important to take advantage of social media, too. Traditional job recruitment agencies and adverts can be very expensive, therefore if you instead focus your recruitment efforts on platforms like LinkedIn, you’ll probably find a wealth of talent by spending nothing more than your time.

Lastly, before you recruit to replace – stop. Think about whether you really need to replace that person. Businesses often ‘panic recruit’ when someone leaves when the company could actually benefit from a reduced headcount anyway in that particular department. If you don’t need to replace a position – don’t!

Quick-fire cash flow management tips

SMEs live and die by their cash flow. It’s something you need to manage daily if you’re to maintain a healthy cash balance and avoid disaster.

Here are some super-simple cash flow management tips that any business can lean on:

maintain cash reserves to ensure you’re ready in the event of a shortfall or unexpected disaster;
use modern accounting software that links directly with your bank for a constant view of your cash situation;
don’t allow late payers to fester (see above);
cut unnecessary costs;
cash in on any equipment you no longer use;
ensure you have a business line of credit in place (even if it isn’t needed yet); and
ask for deposits if your service and products suit that form of payment in advance.