Many small and medium-sized enterprises (SMEs) admit to managing their finances poorly.
Many small and medium-sized enterprises (SMEs) admit to managing their finances poorly.
Some 45 per cent of London businesses say they do not have efficient systems to chase unpaid invoices, while 46 per cent are unaware of what their break-even point is.
Matthew Perkins, an adviser at Business Link in London, which conducted the survey, says: ‘Sound financial management should be the bread and butter of every business, especially during these tough economic times. As we head into the recovery period, understanding where your money is, following up your unpaid debts and knowing what your profit is are vital to keep your business in the black and head for growth.’
The poll finds that businesses employing up to ten people have the fewest processes in place to chase late payments, with only 50 per cent using such systems compared with 72 per cent of larger SMEs.
Of the 350 businesses polled, 49 per cent of the SMEs say they do not know their gross profit margin – a key indicator of business performance.
Clive Lewis, head of SME issues at the Institute of Chartered Accountants in England and Wales, says: ‘The gross margin is an absolutely vital piece of information. If you know your average gross margin and your fixed expenses then you can calculate your break-even.
‘If you don’t know how these ratios are moving it is easy to drive the business over the edge. If you operate on a very low gross margin and then reduce prices further, you might end up making a gross loss even before paying your fixed overheads such as rent, rates and insurance, for example.’
According to research from credit referencing body Graydon, nearly two-thirds of small businesses have a bad credit score.
