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Gearing up for recovery: How small businesses can get their finances in order

In this article that was written exclusively for Business Leader, Evan Lubeck, VP Commercial Products at American Express, lays out how small businesses can get their finances in order as the economy looks to recover.

As business activity bounces back, face-to-face meetings and events return, and consumer spending reboots. With this comes increased expenditure and a need to get on top of business finances. Many small businesses have reached a whole new customer base throughout the pandemic, with consumer support and sentiment towards them being at their highest levels.

As the lifeblood of the UK economy – employing 61% of the UK working population with an estimated annual turnover of £2.3 trillion – small business owners must get their finances in shape if they are to reach their full productive potential and improve not only the growth of their own business but the growth of the UK economy.

Almost every challenge presents an opportunity for the savvy small business owner; their smaller scale and agility is their key advantage. COVID-19 forced many to adapt their ways of working and business practices. Now, by prioritising where they can make gains, small businesses can ensure they’re set up for future success.

But what practical steps can businesses begin to take?

1. Take back control of your cash flow

Juggling cash flow during one of the most economically challenging periods in living memory has been extremely difficult for all businesses, not least small businesses. And as business activity recovers from the pandemic, often at an unpredictable pace, small business owners must reassess and understand what the upturn means for their revenues and cash flow.

Firstly, businesses should revisit previous scenarios, assess what worked well and use these findings to help inform the modelling of new scenarios, and make any immediate adjustments to cash management accordingly.

It’s important to decide whether existing cash conservation and generation plans need to be revised, particularly as economic activity and spending picks up. For example, with a third (33%) of businesses expecting to spend more on building maintenance and installation to improve the safety of workplaces and encourage colleagues back to the office, small businesses who are eager for teams to return need to consider these up-front costs as part of their cash flow.

More streamlined operations are one of the welcome consequences of the pandemic. To stay ahead of the curve, small businesses should explore these new technologies and the benefits they provide. Invoice software, for example, shaves days off the average time it takes to collect payments – immediately helping to optimise cash flow – but it also benefits customers with a more efficient and effective payment experience. The straightforward and low-cost set-up of such tools means suppliers of all sizes can be supported, unlike more traditional, complex offerings that are only affordable for larger organisations.

Businesses also shouldn’t overlook how they finance essential purchases. Here, they should take advantage of their business credit cards, which can alleviate any big, upfront costs and gives businesses much-needed breathing space with their spending. Owners should also pay attention to extended payment terms to help improve cash flow and opportunities to earn rewards.

Ultimately, by utilising technology and taking a forensic approach, businesses will better understand where they need to adapt and where they need help to ensure they have complete cash flow control.

2. Re-think expense management

As businesses get back to more normal levels of operation and spending, an increase in the number of expense claims is expected. But whilst the accurate and prompt filing of expense claims is an important part of any smooth-running business, all too often misplaced receipts and laborious manual data entry can take hours out of the day for both finance teams and employees.

Whilst bigger businesses may well have their own dedicated finance department, as well as enough cash reserves to enable them to clear expense claims quickly, these are luxuries that most small businesses simply don’t have.

Automated expense management tools are a gamechanger for small businesses. They not only enable businesses to track and control expenses more easily and help stop fraud, but they can also help optimise budgets by identifying spending patterns and opportunities for cost savings.

However, despite the rapid growth of expense management automation in recent years, many owners are still manually processing expense claims. Now, more than ever, it’s important to let technology do the heavy lifting so people can focus on more value-adding activity.

3. Use financial forecasting

In business, the only certainty is that there will be uncertainty – and no one has felt this more over the last two years than small businesses. And while we can’t predict all future outcomes, financial forecasting offers a framework to prepare more realistic budgets and strategies for growth. Not only can forecasting help get businesses back on track financially and assist with budgeting, but it can also refine budget plans so the business is better prepared for potential future challenges.

Some areas to examine include prior results, cash flow forecasting, internal risks, and a full consideration of the macroeconomic risk. With a host of data at their fingertips, and much of it available in real-time, owners have greater insight. But this also brings greater complexity; they must identify the right data, capture that information, and incorporate it into their analysis. Here, technology can provide fast-growth companies with the tools to effectively gather, model and process this information to create a more accurate forecast. The businesses that effectively use past experience to inform the future will emerge stronger.

Businesses up and down the UK are looking to build back stronger as the economy begins to recover. Those that can plan and manage their cashflow and finances in a controlled, responsive and adaptable way, and who streamline their expense processes, will be better placed to capitalise on opportunities and stay ahead of the recovery curve. It’s now up to small businesses to respond and seize the opportunities available to them.