Cash crisis hitting businesses

HAVING enough cash is one of the biggest challenges facing businesses in 2010, according to a specialist business advisor to small to medium sized companies.

Stewart Case, corporate services director at Moore and Smalley Chartered Accountants and Business Advisors, believes businesses, whether still struggling in the recession or recovering in an upturn, are at risk of becoming insolvent because of a shortage of money available to them – known as working capital.

Stewart made his comments at the launch of Moore and Smalley’s new Downturn-to-Upturn health check service and follows a recent online poll conducted by the firm that found over a third (36 per cent) of businesses were already heavily indebted to their banks and would struggle to obtain further borrowings.

A number of factors are continuing to put strain on working capital, including a shortage of bank credit and delayed payment of invoices from customers.

Stewart said: “Many companies will be endowed with assets and profitability, but short of liquidity because their assets, for example their sales ledger, cannot be quickly converted into cash.

“I have heard reports of companies, particularly in the manufacturing sector, that despite having orders worth thousands of pounds, are on the verge of insolvency because they do not have the money to fulfil those orders and are unable to secure credit from the banks.

“Trading businesses need to ensure they are working as hard as possible to get into a positive working capital position. This involves tight cost control procedures, strong management of inventory, and good debtor management policies.”

Stewart says eliminating unnecessary costs and making decisions based on correct management information, is vital if businesses want to ensure they don’t run out of cash.

Moore and Smalley’s Downturn-to-Upturn health check service is designed to help customers forecast demand for services, improve cashflow and plan effectively for growth.

According to the poll, a further nine per cent of firms said they would need to borrow to meet growth in 2010, while 55 per cent of firms believe they have the required working capital.