How to future proof your small business

In the wake of the Carillion collapse, Darren Upson, director of Small Business at Xero, talks about how to future proof small businesses.

Carillion’s collapse has shocked the business community. The repercussions could be fatal for the small and medium-sized businesses that have contracts with the company. They risk losing out on millions of pounds worth of money owed to them.

Many have highlighted Carillion’s 120 day payment term as being part of the problem. Those businesses that haven’t been paid for projects that took place months ago run the risk of making redundancies, scaling back and even bankruptcy.

As the events of the last week have unfolded, it’s evident that the small business community is often at the mercy of large contractors. This can seriously impact their survival. More needs to be done to better regulate the process and support small business. In the meantime however, there are steps that you can take to mitigate risk and future proof your business:

1. If you don’t ask, you don’t get

For any small business, it’s a fantastic opportunity to secure a deal with a large organisation. It gives you unrivalled national reach. But, that shouldn’t mean that you agree to all of their terms there and then without closely scrutinising all of the documentation.

Look ahead and think carefully about how your future cash flow will fair if you aren’t going to get paid for three months. Will you be able to pay your staff in time? Will you afford the material you need to produce your goods? They obviously want to work with you so don’t forget it’s a two-way street.

2. Don’t put all your eggs in one basket

Being reliant on only one customer can be risky. If one client is responsible for over 30 per cent of your income, the risk of them going to a competitor could be massively detrimental to your business. It’s up to you, as the business owner, to secure new clients and spread your income over a variety of channels. This is easier said than done of course, but having that security will be paramount to the success and stability of your business.

3. Make it easier to get paid

As well as being detrimental to your finances, the time it takes to chase down late payments can be a massive drain on resources. Our own research shows that the average small business spends 10% of every working day dealing with late invoices. It sounds simple, but the easier you make it for your contractors to pay you, the more likely you’ll get paid on time.

With cloud accounting software such as Xero, you can set up automatic invoice chases, include one click ‘Pay Now’ buttons within invoices and receive payments through a plethora of payment methods such as Worldpay, Stripe and PayPal.

What’s more, this reduces the awkward calls you’d have to make to chase up payments.

4. Don’t be afraid to get help

If you’re struggling to keep on top of cash flow, talk to your accountant. They can offer advice, such as suggesting the right small business loan for you. We’re seeing a huge shift in the way small businesses can access capital. With rich accounting data and up-to-date reporting made available through Open Banking, it’s far easier to find a solution.

Businesses like iwoca and MarketInvoice offer a range of lending options including lines of credit, invoice advances and invoice instalment plans to help keep cash flowing.

Darren Upson is director of small business at Xero

Further reading on how to future proof your business

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