Mark Tighe of specialist tax relief consultancy Catax shares his tips on how UK SMEs can achieve sustainable business growth, such as by protecting cash flow and managing payment terms.
People always think that setting up a business is tricky but the real challenge is in successfully growing that business. While growth is what all business owners strive towards, there are dozens of pitfalls, which is why less than half of SMEs survive beyond their first five years. With this in mind, here are four examples of how to grow your business in a way that is sustainable long-term:
1. Protect cash flow
You should always have a detailed understanding of your business’ financial status by making use of key planning tools such as cash flow forecasts. These will help you plan for growth, assess resources and work out how far you can safely stretch budgets before needing to borrow.
There are also many options available for unlocking cash without hindering cash flow, such as invoice financing and funding from alternative finance providers. These lending packages offer you a buffer so that if there is a shortfall in your cash flow or a late payment, you have back-up funding you can turn to in order to keep things running smoothly until the money comes in.
2. Winning new business
As a business owner you should set aside a healthy proportion of your, and your staff’s, time for developing a new business pipeline. A strong sales and marketing strategy is a good start, and should include several campaigns across social media to networking events and email marketing. It doesn’t matter how good your product or service is if no-one knows it exists, so invest in getting the word out there to potential clients.
3. Manage your payment terms
You must put in place robust policies when agreeing new contracts to ensure you are not too vulnerable to late payment, a problem that is getting worse. In fact, a third of SMEs experienced late payment in the last 12 months, costing their business at least £10,000, according to recent research.
The bigger the company and contract, the longer the payment terms they will likely impose. You can either negotiate for regular 30-day payment terms, which smaller suppliers often find very difficult, or you must design to your company finances so that your cash flow can cope with much later payments. Another way to manage this is to ensure that you demand a significant proportion, ideally 50%, of the fee upfront before starting the work with the rest being paid upon completion.
It may also be worth considering debtor protection which insures a business’ order book. If a customer does not pay its invoices on time or stops trading, the insurer will cover the outstanding debt. This is a good opportunity to review payment terms with your own suppliers and make sure you are not paying upfront when it is not necessary.
4. Find ways to maximize revenue streams
It makes sense to maximize the amount of growth that can be funded through the company’s own revenues first. A key way to increase profits beyond sales and operational efficiencies is tax relief in the form of research and development (R&D) tax credits, capital allowances and Patent Box tax relief. Depending on a company’s line of work, it may be eligible for all three. Here’s a closer look at each of these:
R&D tax relief
Many businesses are eligible for R&D tax relief but do not know it, and that alone can be worth hundreds of thousands of pounds a year to some companies. R&D tax relief can be claimed for a wide range of innovations such as new products, services and business processes in all sectors. For reference, the value of the average R&D claim among our clients at Catax is £56,000. If you don’t know whether your business will qualify, then partner with a tax relief specialist who will.
Capital allowances can be offset against all the expenses associated with a commercial property such as air conditioning, wiring, heating, lighting and security systems. If you turned a commercial property upside down and let anything not screwed in or bolted down fall out, most of what is left can be used to claim a capital allowance though the rules are complicated. All UK taxpayers that own commercial property may be eligible for Capital Allowances tax relief but eligibility and the value of each claim depend on multiple criteria. To give you a rough idea of how this can add up, the value of the average capital allowances claim among our clients is £49,000.
Lastly the Patent Box tax relief, introduced in 2013, rewards income made from patents with a reduced rate of corporation tax. Since this is a relatively new tax relief, a huge proportion of companies remain unaware of it and it is the job of accountants to make sure clients check their eligibility. The value of the average Patent Box claim among our clients is £56,000.
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