For startups the number one challenge is and always has been cash flow, but UK small businesses are now at a critical point.
This summer, England and Wales saw the second-highest number of company insolvencies since 2009. After a few years of uncertainty this is unsurprising. But, it’s worrying that the repercussions are still enduring – recent figures from Xero found that small businesses are suffering the longest late payment times since pandemic.
It is abundantly clear that business leaders need to find ways to navigate the cash flow problem, especially for those ready to grow their business. While the amount of capital a business owner can invest or borrow is important, the real challenge often lies in effective cash flow management.
A significant part of this challenge stems from outdated, paper-based accounting practices, which many still rely on—either out of habit or due to a lack of time to properly record and manage their finances.
This is where technology can help. With AI driven tools business leaders can save time, gain visibility and ultimately take control of their cash flow as they scale.
Data is key to identifying cash flow challenges & planning
When starting a business the first question is cash flow, even before profitability. While profitability is the ultimate goal, maintaining a positive cash flow is what truly keeps a business afloat on a daily basis. Unlike profitability, which measures how effectively a business generates income relative to its expenses, cash flow is the lifeblood that fuels everyday operations—paying employees, purchasing inventory, and covering unexpected expenses.
For that reason, cash flow management is the cornerstone for building and scaling a successful business, and it starts with good quality financial records to aid decision making. For instance, using tools like Dext’s bookkeeping automation platform, which automatically extract data from invoices and integrate it with accounting systems, means financial data can be quickly collated into one central dashboard.
With these tools in place, entrepreneurs can begin to have a real-time view of their financial situation, making it easier to identify trends and potential issues before they escalate.
This was the experience of Toby Stewart, founder of Bright/Shift, a creative agency focusing on supporting sustainable businesses, who was struggling to manage finances efficiently with a small team. Automation has allowed Bright/Shift to streamline tasks like invoicing and expense management, significantly reducing the time spent on manual processes. Features like automated receipt collection allow the company to stay organised and on top of their financials, allowing them to shift their focus back to their core business goals.
The use of such tools allows businesses to make more informed, timely decisions, enabling businesses to grow sustainability without the constant worry of financial administration.
Automating accounting ahead of the Autumn Budget
Cash flow should be front of mind following Keir Starmer’s warning that this Autumn’s Budget will feel ‘painful’ for many, particularly business owners who may be likely to face an increase changes to benefits and reliefs.
Businesses, and their accountants and bookkeepers, should be keeping a very close eye on the Budget and what it could mean for them. Any changes to tax or reliefs currently available would affect cash flow, not only potentially impacting the business but also the business owner personally.
The upshot is that businesses may need to respond quickly to the implications that the Autumn Budget could have for them to effectively manage growth plans.
Automation in accounting tools supports scenario planning, which helps in times like this. By using up to date insights, businesses can plan ahead for different outcomes and any potential instability. Mapping out cash-flow in the immediate, medium and long-term and what cash reserves may be required at each stage is the basis of a strategy of financial resilience.
Business leaders and owners should also consult with their accountants and bookkeepers about any post-Budget seminars or updates they may offer, to understand the potential impact of new government announcements, particularly around tax.
Staying ahead – preparing for any outcome
A business can’t grow without solid cash flow, and maintaining it comes down to having up-to-date, accurate numbers. The first step is using technology to accurately record data from paper receipts and notebooks within accounting software. Once the data has been properly consolidated into a single platform, entrepreneurs can leverage insights from this information to gain full visibility of their cash flow. This awareness is essential for scenario planning, especially in light of potential legislative changes, helping business owners feel more in control and able to plan ahead.
Whether it’s keeping the lights on for an extra six months or preparing to scale, cash flow management truly is where the competitive edge lies.
This article was written by Paul Lodder, VP Accounting Product Strategy at Dext.
