Cash Flow Tight UK: How to Increase Working Capital & Boost Your Bottom Line

Cash Flow Tight UK: How to Increase Working Capital & Boost Your Bottom Line

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Are you struggling with a tight cash flow? Don’t worry, I’ve got you covered!

In this comprehensive article, I will share the reasons why your cash flow is tight and actions you can implement to increase working capital and also bottom line profit.

I’m Shishir Khadka- The Cash Flow specialist. From what I have seen, in the current economic climate, many businesses in the UK are finding it challenging to maintain a healthy cash flow. This is validated by research from Xero. According Xero’s small business insights in the UK, small business performance fell by 13 points. Limited working capital to run day-to-day business operations means that not there is not much money left either to reinvest in growing the business.

If you are facing a similar cash flow situation, then you are in the right place.

By the end of this article you will have actionable cash flow improvement strategies so that your cash flow is not tight anymore.

Understanding Cash Flow Tightness in the UK

The first step in addressing cash flow tightness is to understand the factors contributing to this issue.

From what I have experienced working with many small business owners in the UK, several factors can lead to a tight cash flow situation for businesses.

The main ones I have seen are economic downturns, late payments from customers, and unexpected expenses.

Economic Downturns

In the UK landscape, post Brexit and Covid-19 pandemic, there has been major downturn in economy.

According to Guardian, UK entered into recession in December 2023.

I have seen first hand on my clients sales across various sectors in retail, dental practices, cafes , marketing agencies, are experiencing cash flow tightness.

Late Payments from Customers

Late payments from customers or clients is one of the main causes of cash flow constraints.

Did you know, according to Chaser.com, 87% businesses were paid late in 2023. Thus putting a strain on working capital.

Unexpected Expenses

Businesses often face unexpected expenses, such as equipment repairs, legal fees, or unexpected regulatory changes. These expenses can quickly deplete your cash reserves and make it difficult to maintain a healthy cash flow.

Common Causes of Cash Flow Tightness in the UK and Solutions to Fix them

If you want to deal with cash flow tightness, it’s important to identify the common causes behind it.

By understanding these causes, you can take targeted actions to address the root cause of cash flow issue.

From my experience of working with many small business owners in the UK, here are the common causes of cash flow tightness.1. 1.

Inefficient Accounts Receivable Management

If you are not collecting money on time then there’s credit control process problem. You need to build robust cash collection process.

Poor management of accounts receivable can lead to delayed or missed payments from customers. This can cause a cash flow gap and restrict your ability to pay the bills on time.

I call it profit rich, cash flow poor.

If you want a streamline process of handling your cash collection process, here’s the step by step guide including template emails to send to your unpaid debtors.

Excessive Inventory Levels

If you are holding excess inventory, then your cash is tied up. Not only this, the value of inventory may be diminising on a day to day basis and so when you sell or dispose , you will get less money.

You need to maintain optimum level of inventory to ensure, you have enough of them to cover busy and slow periods.

If this is your concern right now, check out masterclass I delivered to Zoho on how to prevent inventory from consuming your cash flow.

Lack of Cash Flow Forecasting

Without accurate cash flow forecasting, you may find yourself unprepared for cash flow fluctuations. By forecasting future cash inflows and outflows, you can identify potential shortfalls and take proactive actions to mitigate the cash flow gaps.

If you need help, creating a cash flow forecasting customised to your specific situation, without interrupting your accounting and finance operations, then here’s the link to book a call.

Not Utilizing Invoice Financing and Factoring Services

Invoice financing and factoring services provide businesses with immediate access to funds tied up in unpaid invoices. These services allow you to sell your invoices to a third party, who then advances a percentage of the invoice value to you. This can provide a quick cash injection without taking on additional debt or waiting for customer payments.

Not Exploring Government Grants and Funding Options

In the UK, there are various government grants and funding options available to businesses.

You will find general small business relief to niche specific, to stage of the business.

For example, one of my clients based in Bond Street, Central London, claimed 75% discount of business rates relief related to 2023-24 and 2024-25, that is a massive savings of £45,372 a year.

Research and Development (R&D) grants are one example of government funding designed to promote innovation. These grants can provide financial support for businesses engaged in research, development, and technological advancements. By accessing R&D grants, businesses can invest in projects that have the potential to drive growth and generate additional revenue.

Another funding option is the Small Business Grant Scheme, which offers financial assistance to small businesses looking to expand or invest in new equipment. This grant can be a valuable source of working capital for businesses in need of a cash injection to fuel their growth. For example, an ecommerce business client received a grant of £65k for building sustainable clothing brand.

You will find most of the options that are available on gov.uk

Not Using Technology in Improving Cash Flow Management

If you are a start up or your cash flow management requirement is simple, then I recommend you can use a simple cash flow management spreadsheet.

If your business is growing or there are lots of moving parts to keep a track of such as different bank accounts, multiple locations, or you even want to be on top of cash flow on a real-time basis by having an access to accurately, timely cash flow statement, then I recommend cash flow software tools such as Hungry Cash Flow, Agicap, Cash Analytics.

These are specific cash tools to improve cash flow.

Conclusion: Taking Proactive Steps to Improve Your Cash Flow Situation

Cash flow tightness is a common challenge faced by businesses in the UK.

I believe if you focus on the points I have shared above and implement the strategies I have outlined, you will be start improving cash flow.

Now I leave it to you with a question.

What is your #1 cash flow tightness cause ?

Let me know, by leaving a comment below.

If you need practice advice on how to fix cash flow tightness, join Hungry Cash Flow Community.

If you need my personal help, to fix your cash flow, here’s the link to book the call.

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Shishir Khadka, qualified as a chartered certified accountant in 2009. He is the creator of cashflow hub– the world’s most comprehensive cash flow resource online and is one of the UK’s leading cash flow specialist who helps busy business owners and entrepreneurs generate more profit and create consistent positive cash flow without over relying on getting new sales.

He has delivered a masterclass to a global software Zoho’s audience to create consistent cash flow. He has written articles for floatapp– one of the leading cash flow software and has also been featured in the major publications such as Independent. He has been sharing his learning and insights on his youtube channel.

He wrote about his learnings from helping an e-commerce client scaled the business cash flow positive from £500k to £1.6m in four years in “The Three Key Obstacles to Faster Growth: How You Can Overcome Them Using Cloud Accounting.

In his career spanning 18 years as the cash flow specialist, he has helped businesses of all sizes, ranging from £40K to £40M.

Cash Flow Tight UK: How to Increase Working Capital & Boost Your Bottom Line

By Shishir Khadka, FCCA.