One in five (21%) small and medium sized businesses (SMEs) cited cash flow as a major challenge to growth, according to a new study by Albion Ventures.
Albion’s research shows that cash flow concerns are far higher among firms that are increasingly confident about the future and have attempted to raise finance for growth, suggesting that it is a problem of success rather than failure.
Underlining SME’s growth ambitions, a third (33%) of businesses plan to raise finance in the next 12 months. Of these 27% are targeting capital for business development and 23% looking to expand their premises, both represent increases from last year. There has been a 25% fall in the number of firms looking for finance solely to fund working capital, suggesting that ambitions are rising.
According to the second Albion Growth Report, which is designed to shed light on the factors that both create and impede growth among UK SMEs, cash flow concerns were the most acute among firms in the cash-hungry production sector. These firms recorded the highest level of business confidence with 84% predicting growth over the next two years versus an average of 62% among all SMEs polled.
Sole traders are particularly sensitive to cash flow problems with one in four (24%) citing this as a major challenge compared to just 12% among larger SMEs with over 50 employees. Regionally, businesses in the South West and Wales were most affected by cash flow problems.
In Albion’s study, cash flow ranked as the second biggest threat to small businesses achieving higher productivity, behind red tape, which is a perennial bugbear for companies.
Patrick Reeve, Managing Partner at Albion Ventures said: “It’s a clear sign of the improving economy that cash flow difficulties were cited by small businesses as a barrier to growth rather than a threat to survival. As a result, cash flow appears to be a problem of success rather than failure as many businesses find their expansion ambitions become derailed because they cannot maintain a sufficiently healthy cash flow. It is therefore no surprise that one in three businesses is looking to raise finance over the next 12 months, up from just 10% in the past year.”