How to control your small business cashflow

In this practical webinar with PayPal, our experts cover everything from common cashflow problems to your different financing options...

In this second video it’s all about cashflow. Our experts cover everything from common cashflow problems to your different financing options.

Watch it on-demand now to learn more about:

  • What’s keeping small business owners awake at night- hear common and shared problems
  • What alternative lending options are out there for start-ups and small businesses today
  • Strategies to fine tune your cashflow from funding to growth
  • How to approach financial wellness for your business and for your employees

It’s all about cashflow

For our finance session, the panel was made up of head of SME for PayPal UK, Ben Ramsden, Funding Options chief commercial officer Stuart Lawson and head of marketing for men’s clothing brand &SONS James Cowdale. It was a really useful talk with lots of practical tips, chaired by our editor Tim Adler.

We’ve summarised the key takeaways below.

What’s keeping small business owners awake at night?

“It always boils down to cash,” says James. “When we face a financial situation that needs dealing with, it causes a distraction – which stops us from focusing on being creative. We end up making bad decisions because we’re knee jerking. If we can fix cash worries, everything else becomes easier.”

Stuart added that the challenges Funding Options’ customers are seeing boil down to “supply chain issues” and a range of financing headaches. “Some customers need to order stock for the Christmas season, others face increased hiring and salary costs. And you’ve got the traditional, perennial issues that face small businesses, such as late payments.”

Ben shared how PayPal’s Business of Change Report (which surveyed 1,000 small businesses) echoed these worries. “We found that although most businesses said the last two years have been the toughest in their existence, about a quarter said they think that the next year is going to be even tougher. And by far and away, the biggest issue that was cited was the current cost of living crisis and cashflow.”

For &SONS, James notes the challenges of having to frontload spend. To accelerate product sales, the business relies on media spend, but for some of the paid channels the cost is extremely high. And as a fashion brand, they’re “buying ahead of season, spending money on a product that takes months to arrive.”

“Operating costs are good for the business, but it boils back down to cash.”

Where can you turn to for help?

First and foremost, small business owners want to focus on their business, so financial admin is a huge pain – and a lot of this comes from it being difficult to do.

One of Stuart’s key recommendations when it comes to finance is education. “If you’re looking for finance for the first time, and you’re considering the alternative finance market, then do some reading. Lots of the lenders (and Small Business) have material that can help educate.” It’s important that you understand your options so you can find the right product for the challenge you’re trying to alleviate.

Understanding the concept of financial wellness

Another key point in PayPal’s report highlighted that business owners face so many urgent operational challenges that they don’t make time to delve into the finances. A quarter, according to Ben “don’t even look at the books”.

In contrast, financial wellness is really understanding your business and its cashflow and having a set process in place to track cash coming in and out.

And the report showed that businesses that have upskilled, financially and digitally, felt not only financially better but mentally better too – and more able to take holidays and time off.

According to Ben, “You’ve got to take that first step, look in the books, get the processes in place, and then figure out how to optimise the business and potentially find new sources of cash flow.”

Getting more cash into the business

“If you have a set amount you need to borrow, you’re probably looking at unsecured term lending – either short, medium or long term,” says Stuart. “You borrow that amount and pay it back over a period.”

“And you’ve got the same, but secured, which is where the lender will take security against property and asset, receivables, etc.”

But for cash flow issues, you might look at more alternative products, like flexible borrowing or revolving credit facilities, where you get a certain amount that you can dip in and out of, as you require.

Most important is to think carefully about your needs, and what product will be the best fit.

Merchant cash or business cash advances, where lenders will advance cash against your card receipts, or general revenue, are also becoming more prevalent, according to Stuart.

“We could bucket those as revenue-based lending. Your repayments will be a percentage of what you earn daily or weekly, so they are proportionate to the revenue that comes back through the business.

“You’ve also got the asset finance world where you can look at HP or leasing type solutions to purchase a particular asset for your business. If you want to look at freeing up working capital, if you’ve got an asset where you’ve got some equity, you can potentially refinance that to free up cash.

“Lastly, there’s invoice financing and discounting, where you can seek finance against your invoices.”

The growth of alternative finance

Last year, high street banks rejected a third of all business borrowing applications, nearly 4 billion pounds worth of lending. And more small businesses are becoming aware of other financing options.

In the UK, the alternative finance market is pretty mature. It was born out of the global financial crisis, just over a decade ago. But the pandemic has accelerated uptake and awareness dramatically. As Stuart says, in lockdown the “banks were jammed with applications so it kind of forced small businesses to look elsewhere to some of the alternative finance providers.”

James notes that &SONS modelled a range of different lending options to find the best fit and went for PayPal’s own merchant cash advance – as it was simple to apply for and suited the brand’s sales cycle. Because its cash flow issues were seasonal, for them “a shorter repayment term was better, although we were paying more daily. It worked out better as we could refinance again sooner.”

5 top cashflow tips

If you are a small business who is looking to understand your funding options, we’ve summarised the best and final advice from our panellists…

  1. Making profit doesn’t necessarily mean you have cash in the bank, so keep an eye on your cashflow constantly. Look ahead for those pinch points, and make sure you’re prepared.
  2. Expect the unexpected. Nothing will go to plan, so embrace it, and build those challenges as part of your day.
  3. Don’t be afraid to get advice from other business owners and experts and use digital tools to help your processes.
  4. Dedicate the time upfront to understand your business and get under the bonnet. Be disciplined, whether that’s making sure that you’re invoicing on time or chasing up late invoices, understand your working capital
  5. Get educated around credit score and different types of finance

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Lucy Wayment

Lucy is the former editor of and has been writing and working in the small business and entrepreneur space for over 12 years. She’s now Head of Content at Stubben Edge, where she writes...