Recent insolvency statistics show that there were record insolvencies in 2023. More than 25,000 businesses ceased trading which is the highest annual number since 1993. This indicates an increasingly alarming trend of business failures. With poor cash flow management quite often the culprit, Robin Murray, Principal of RJM Accountants and Northern England Regional Ambassador for the Institute of Financial Accountants, looks at the vital role a good accountant can play in boosting cash flow options and easing the pressure for SMEs.

Concerning statistics

Reportedly, 9 out of 10 SME enterprises' development is directly hampered by cashflow worries and the average UK business confronts cash flow shortages for at least four months per year. Furthermore, 23% have cash flow problems at least six months out of the year, and 94% have at least one month where cash flow is negative. Similarly, Experian conducted research on the impact of increased energy prices. According to their analysis of 1.16 million SME enterprises, 30% are at 'heightened risk,' which means they may not have the cash to withstand additional energy price hikes or the impending increase in the National Living Wage. This is more than double the 13% who were at 'heightened risk' prior to the lifting of the energy price restriction.

Strategic alliance

Owners of SME’s spend many hours in heartache worrying about the situation and often fail to make use of their Accountant who has skills and resources to help them get out of their situation. Accountants when it comes to understand the need for healthy cash flow management; in fact, it’s here where they excel as expert advisers. Many business people fail to grasp the distinction between cash flow and profit and loss until they are confronted with direct liquidity issues that push owners to make impulsive decisions, potentially leading to forced closure. Also, the data they rely on is just from their bank which doesn’t have any additional analysis although some of the online only ones do allow categorising of items. Accountants begin by assisting businesses in understanding the role of cash flow and visualising their own forecast, maybe augmenting the assessment with additional insights such as cash flow stress tests. Importantly, exposing potential revenue versus expenditure bottlenecks can help SMEs to make informed decisions and make constructive changes to lessen or eliminate constraints. This will help companies gain control through extended finance, more stringent debtor processes, and even adjusting payment terms.

If an SME’s cash flow projection indicates future deficits or surpluses, an accountant can advise the firm owner or management on the next steps. Advice will differ depending on whether the predicted shortfall or surplus is short term or long term:

Cash deficit
Short term:
Increase prices! (the quickest way to improve revenue. Many businesses fail to increase prices for years).
Ensure that your finance data flows are up to date.
Review budgets and planning assumptions
Increase payables (take longer credit periods from suppliers)
Reduce receivables (chase debtors and offer shorter credit periods to customers)
Delay planned large purchases (e.g., upgrading non-current assets)
Negotiate overdraft

Long term:
Review business plan and strategy (can the business remain a going concern?)
If business deemed unviable, consider shutdown
If business deemed viable, raise long-term finance
Identify underperforming products or services and consider divestment

Cash surplus
Short term:
Pay suppliers early to take advantage of available early settlement discounts
Increase inventories to take advantage of bulk purchase discounts
Bring forward planned large purchases
Make short-term investments


Long term:
Explore options for expansion or diversification
Replace or upgrade non-current assets
Make long-term investments

Overarching support

Amid the ongoing challenges of the current economic landscape, accountants are there as a critical friend, delivering specialised, relevant, and potentially business-saving advice. It is based in part on the usefulness of digital, real-time data, with many accountants providing a 'helicopter view' of year-end numbers to meet regulatory requirements.

Ultimately, while SMEs can derive significant value from accountants’ cash flow forecasting via their education and insight, they can also gain the benefit - and true value - from the tailored support plans that they can offer. Better budgeting, credit management (supply and sale), whether to upgrade assets, and how to negotiate acceptable funding can all have a tangible, practical impact on organisations.