How SME Finance Directors can thrive in times of uncertainty

SME Finance Directors can thrive in times of uncertainty

How SME Finance Directors can thrive in times of uncertainty

We live in uncertain times. With new business challenges arising, more is being asked of finance leaders. Yet with uncertainty comes opportunity. By strengthening their financial strategy, enhancing business processes and investing in improved efficiencies, CFOs can ride the unsettled waters, and furthermore, optimise their business for lasting prosperity. Here we provide specific and actionable strategic advice so that SME Finance Directors can thrive in times of uncertainty.


British CFOs operate in a climate where economic and political uncertainty in their home territories is seen as the largest threat to their business. Thriving in today’s uncertain climate requires a new set of skills from SME Finance Directors.

“The role of finance is changing,” says Miles Ewing of Deloitte Consulting LLP, “Finance executives today are charged with helping drive strategy and overall performance. They are playing an important role in addressing a broad array of critical issues.”

UK CFOs need to lead the charge for optimisation within their business. By sharpening processes, strengthening cash flow and working capital, and carefully investing in efficiencies, the opportunities are there to thrive. Here are some key areas that SME Finance Directors should focus their efforts on in order to align their business for minimum risk and maximum potential.

Optimise your cash flow

The number one priority of SME Finance Directors is cash. Cash flow concerns keep 63% of small business leaders awake at night, while 60 per cent say that inadequate cash flow affects their ability to pay suppliers on time. Optimising the flow of cash in and out of your organisation is fundamental to building a strong, thriving business.

Reducing the cash conversion cycle of your business will enable it to be in a position to capitalise on opportunity as it arises. It will drive its growth over the coming years. Uncertain environments can make businesses wary of losing customers, however, cash is what your business needs to thrive. Make sure that you invoice swiftly and accurately, collect efficiently and determinedly, and pay judiciously within the terms of your contracts. Make credit decisioning fast and always pre-check new customers.

When things are going well, try to save cash reserves. Being in a healthy financial position allows you to make the right decisions for your business, in terms of supplier partnerships, investment and recruitment – you can take on business, suppliers and staff because they’re the right fit for your brand and growth ambitions, rather than because you need to.

Maintain healthy working capital

A third of business leaders admit that insufficient working capital has stunted their growth plans. They also rate agility as the most important capability to develop over the next three years for meeting business challenges. Running a healthy working capital surplus puts your business more in control. It allows it the financial freedom and agility to seize opportunities as they arise.

With more capital available, SME Finance Directors can thrive in times of uncertainty. They can increase competitiveness by offering supplier discounts to customers for prompt payment. They can optimise stock levels, tender for larger contracts and offer increased credit terms. This is where choosing the right finance facility for your business needs can help. It will enable you to keep the flexibility required to thrive in uncertain times.

Keep your business creditworthy

When times are uncertain, it can be tempting to retain money in the business by pushing back supplier payments. However, this can be counter-productive in the long run. Pay all invoices on time. This will build up your credit rating and enable you to access additional finance when opportunity arises. Plus, your reputation as a good client will also enable you to negotiate better prices from suppliers and attract deals with the best suppliers in the market.

Check your credit score regularly, and have a clear financial strategy that forms the backbone of the wider business plan. Lenders will want to see that you’ve got a realistic and flexible enough financial plan. This will include adequate assets, financial reserves, and collateral to handle any fluctuations.

With a healthy, creditworthy financial standing, your business will be in the best possible position to obtaining funding for growth.

Diversify your sources of lending

Obtaining the right financial support is a fundamental part of running a thriving business with growth aspirations. Jose Carvalho, senior vice president, Global Commercial Payments Europe at American Express, says:

“enterprising businesses often find it difficult to access the finance they need to invest. As a result they’re looking beyond traditional sources to secure funds to enable them to thrive and grow in the long term.”

Diversifying your sources of funding has three main advantages. Firstly, it spreads concentration risk, which is crucial in times of economic uncertainty. Secondly, it enables you to find the right source of finance. One that caters specifically to the business model and growth aspirations of your firm. Thirdly, restructuring your debt can help to optimise your liquidity and increase your shareholder value.

For example, if your business is looking to explore more stable markets overseas, then securing supply chain finance or another form of supplier payments finance can help. Flexible, cost-effective borrowing will help bridge the gap between you launching your product overseas, and your new customers finally choosing to purchase, and pay for it.

For maximum financial agility, expand your financing by establishing a business line of credit. You don’t have to use it immediately. Knowing it’s in place and available when required will help you make smarter business decisions moving forward. Revolving credit facilities like Pay4 are designed specifically for this purpose.

Reduce supply chain risk

Reducing supply chain risk is an important part of ensuring your business is in the strongest position possible to succeed in uncertain times. As a Finance Director of an SME, there are 5 things you can do to help reduce the risk of supply chain failure:

  • Assess the financial health of all suppliers before doing business with them
  • Pay your suppliers promptly to improve the flow of working capital throughout your supply chain. This will help to increase its stability. Should opportunity present itself, your suppliers will be more likely to have the resources to meet your needs.
  • Be prepared to pay more for a diverse supply chain. Although cost may be the main driver, ensuring you have a diverse base of suppliers will help when a particular country or region experiences a disruption.
  • Communicate with your suppliers promptly if you’re experiencing financial instability.
  • Incorporate agility into your cash flow management. With working capital available to smooth out demand cycles, you’re less likely to experience disruptions in supply during spikes of increased demand.

Be proactive instead of reactive. Making sure all of your suppliers are aware of your forecasts and customer demand cycles will mean that should a fluctuation occur, they will be prepared and able to deal with it more easily.

Reassess and refocus plans

SME Finance Directors can thrive in times of uncertainty by employing stricter controls over business projects and plans. Keeping robust controls serves as both a guarantor of efficiency and as an early warning system. Keeping a close eye on projects is never more important than in uncertain times and, without creating a climate of fear that inhibits innovation, as a finance leader, you should increase the levels of scrutiny on all aspects of projects.

Be sure to develop a well constructed and communicated set of plans or goals. Have absolute clarity on what the business is trying to achieve, how it’s going to achieve it, and what resources are required.

Develop scenario strategies so that you and the rest of the leadership team know exactly what to do in different circumstances. Particularly if there are new opportunities or risks to your company, such as a large reduction in business.

Plan what financial changes you will make to your business in the eventuality of these scenarios playing out. Work out what the timetable would be for them. The more prepared you are, the more likely you are to ride through the rough period and make it out the other side.

Strike a balance around spend

Don’t be overly defensive when it comes to spending. Throwing your financial strategy into reduced operating costs, shrinking discretionary spend, lowered headcount, reduced marketing and cash preservation can cause problems. The workforce will be demotivated, and innovation will decrease. Precisely when the business needs new solutions to the new problems that the uncertain climate is creating.

Cost-cutting tactics may save you money in the short term but will make it harder to bounce back from the period of uncertainty and configure your business for longer-term success. Seeing everything through a ‘loss-minimizing lens’ can cause a business to aim low and may impede innovation. It also has the potential to lower quality of output and therefore reduces customer satisfaction at a crucially competitive time.

SME Finance Directors can thrive in times of uncertainty by mastering the delicate balance between cutting costs to survive today and investing to grow tomorrow. SME CFOs who drive a balanced strategy are more likely to thrive after a recession as well as during the uncertain times.

Invest in technology

48% of SMEs believe availability of better technology will have a positive impact on business growth in 2018. Embracing new technologies will not only help your business to become more productive and efficient, but it will also improve your financial processes. Industry experts are predicting that spending on finance cloud-based applications will increase dramatically in the next two years and that by 2025 the cloud will be the dominant model of financial management.

Work out where you could make investments to drive productivity, understanding and efficiency. A robust financial strategy begins with accurate information. You can do many tasks using software tools to improve your financial accuracy, productivity and analysis. We can say the same for operational processes. Investing in technological improvements across the business will make it more reliable, agile and competitive.

Look after the people

Uncertain times make for uncertain employees. In the short term, staff turnover can cost anywhere up to three times an employee’s annual salary. There are also longer term implications of having an insecure workforce. Once the uncertain times pass, they’ll have plenty of new opportunities to choose from and will begin to look elsewhere.

Be sure to reward your people appropriately to reduce employee turnover. Small details such as bonuses and reward schemes go along way to improving staff buy-in. Invest in employee engagement, training, education, skills and even labour-saving machinery to improve both efficiency and employee retention.

Keep employees in the loop about the financial performance and direction of the company. Engaged, passionate employees that are treated well and bought into the brand, strategy and direction of your business are not only more motivated to succeed. They are also likely to stay and help your business survive and thrive.

Conquer risk yet embrace opportunity

Mr. Davidoff notes, “the pace of change and the more interconnected world we live in, although driving more opportunity, also drives a parallel increase in risk. This can cause CFOs to have one foot on the accelerator and one foot on the brake.”

Mitigating risk is a big part of financial management. In uncertain times, this can become a major focus for SME CFOs. However, it’s important to see the challenge in broader terms.

“To thrive in uncertainty, companies should consider a new approach to margin and business improvement that can help them identify, prioritize, and pursue new growth opportunities while generating cost savings, freeing up cash, and supporting the development of capabilities and talent required to achieve its strategic vision.” - Deloitte - ‘Thriving in uncertainty’ report.

Having a flexible approach to strategy with more regular reviews of progress and change while judiciously increasing and protecting investment in key areas helps to create a balanced, progressive and proactive business model. It is this approach that will ensure SME Finance Directors can thrive in times of uncertainty. And furthermore, maximise long-term prosperity.