It’s all about getting the balance right if SMEs want to grow

 

There is a lot of optimism in the press and the New Year heralds confidence about the prospects for growth.

What does this mean for SMEs hoping to take advantage of the predicted improved trading conditions?

In a word: realism.

It requires deep knowledge of a business’s current financial position, specifically its current assets and liabilities, as these are crucial for funding growth.

If an SME is operating on very slender margins, or just about hanging on from month to month, it is unlikely to be able to take advantage of increasing orders without some additional finance and preferably not of the kind that relies on personal savings or support from friends and family, as a quarter of SMEs currently are, according to research by Bibby Financial Services.

SMEs will need to be mindful of two things when planning for growth. Firstly, it is looking increasingly likely that interest rates may start rising towards the end of 2014 which suggests that having a robust forecast will help assess the impact of interest rates before taking on more debt.

Secondly, there is as yet little evidence that lending to businesses is becoming any easier, especially loans from the banks or extended credit from suppliers which suggests that growth will need to be funded by either reserves or shareholders.

So an SME’s first step in planning for growth is to not only to know the current financial situation but to also have realistic forecasts that may need to be prepared with input from an external business advisor.

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