It’s a sad truth that 20% of new companies end up failing within its first year of operations, with this figure rising to 50% in year five. Ineffective cash flow management is one of the most common causes of businesses going under, so it’s essential that you have a clear understanding of how much money is coming into your firm and how much is going out.
The lifespan of a business never runs smoothly, and there will always be some unexpected bumps in the road. Having a robust cash flow management plan in place enables a company to understand how susceptible it is to being derailed by an unforeseen cost or a barrier to regular trading. If they find their current position to be too risky, they can make the required changes and hopefully future proof their operations.
Effective cash flow management can also have an impact on business practices. For example, if you are usually lenient on firms that owe you money, you may find out that a lot of your cash is actually tied up in other businesses. As a result, you could decide to implement more rigid payment terms to reduce the amount of money owed to you.
Trading while insolvent can have some serious repercussions, such as fines and disqualification. Despite this, many business owners are not fully aware of their financial position and are therefore at risk of falling foul of the law. This could be down to genuine ignorance or an unwillingness to accept that things are not going well.
Although they are extremely challenging to get through, financial difficulties needn’t spell the end for a company. Sometimes it’s possible to change course and use a variety of business recovery measures to get back on track. However, the longer a firm struggles without action, the less chance it has of survival — it is essential to act quickly and decisively. This is impossible if you have no idea how your company is performing financially.
Other stakeholders such as shareholders, suppliers, and potential investors will also be interested in the performance of your company. If you’re not able to supply them with the information they require, this could lead to your ongoing working relationship becoming rocky. With so much at stake, it’s imperative that business owners understand how their firm is performing so they can recover from any problems and stay in the black.
Fraud is a huge concern for businesses not just in the UK, but across the world — and with good reason. It is estimated that over £100 billion each year is lost to fraudulent activity in the UK, making it one of the most serious pitfalls for companies in all areas of industry. As firms become ever-more reliant on technology, fraudsters are also evolving and coming up with more advanced schemes that are difficult to detect.
Unfortunately, it’s extremely common for firms to become victims of fraud because of vulnerabilities within their operations, or as a result of poor business decisions. It is also the case that many companies will only choose to take action once fraudulent activity has taken place instead of taking preventative measures. Of course, this could be down to a lack of knowledge regarding the risks their company faced.
Taking a more proactive approach can mean that any potential vulnerabilities and loopholes are closed before they can be exploited. While it’s possible to carry out a review of your operations internally, it may be a good idea to seek the assistance of a specialist, who can offer an unbiased opinion and recommend the best solutions for your circumstances.
Today’s business world is incredibly fast-paced, with potential risks to your stability around every corner. Failing to address these risks could not only threaten the future of your company, but also cause significant reputational damage and leave you open to prosecution. The practice of business intelligence can be used to obtain comprehensive information about your firm and other third parties to reduce your vulnerability to risk and help everything run smoothly.
Business intelligence can assist with all areas of running a company, from deciding who to hire or work with as a supplier, to assessing whether it’s a good idea to purchase another company or enter into a partnership with a third party. It also helps with a plethora of regulations, such as the UK Bribery Act and Know Your Customer (KYC) requirements.
It’s common for a lot of companies to get into difficulty because of poor decision making, often because they simply do not have all of the facts to hand. Business intelligence alleviates this problem and allows a firm’s owners to make more balanced choices.
No matter if it’s to check the cash flow situation of a business, its solvency, or how susceptible it is to risk, it’s essential to have a clear understanding of how a company is performing. This information is not only important to the owners themselves, but also to other stakeholders such as banks or shareholders.
External stakeholders will want to see a clear report about a company’s performance, particularly if it is distressed or not performing as well as expected. In this scenario, clarity is everything, as it’s important to have a thorough understanding of how things are going so you can get a good idea of what actions are required.
An independent business report (IBR) can provide this clarity, and give company directors or interested stakeholders an overview of the current situation and potential ways to improve.