Taxes, Poor Cash Flow Management A Deadly Combo For SMEs

For all of the expenses startups and small businesses must endure, taxes can be especially painful. And while SMEs are often too risky for many lenders to approve, financers are even more reluctant to provide working capital for the sake of paying these tariffs.

New research from Funding Options has put into perspective how small businesses can struggle to access working capital to pay their taxes. According to reports published Monday (June 29), Funding Options found that the U.K.’s HMRC — the revenue and customs government body — took action to shut down as many as 3,000 U.K. businesses for failure to pay taxes in 2014. The group was successful in shuttering the doors of 1,887 companies last year.

Funding Options released these findings at a critical time in the economic calendar. July 31 marks the deadline for small companies to pay their self-assessment tax, and according to the company, it’s a pain point for cash-strapped SMEs.

The firm, which provides a matchmaking service for SMEs seeking financing options, noted that regulation can make SMEs owe taxes before their revenue is actually collected, making it even more difficult for businesses to adequately manage cash flow and stay in business.

“For small businesses looking nervously at the upcoming July 31 tax payment deadline, the need to get funding in place to cover the payments is now pressing,” said Funding Options Chief Executive Conrad Ford. But, he added, that’s easier said than done. “Funding to cover tax bills is an area we are seeing increasing demand for,” he said. “It’s not something banks are keen to lend for, leaving businesses having to find other funding options.”

Many SMEs are unaware of their options to access funding when they are rejected by a bank, Ford said. That places the businesses in direct threat from the HMRC, which sells off the assets of a company to compensate for missed tax payments.

Alternative finance can be a savior for small business owners at this time. “Although HMRC does attempt to resolve issues with businesses, it can only wait so long if arrears are building,” the Funding Options executive noted. “SMEs need to plan ahead to identify ways that they can manage their cash flow more effectively, such as alternative finance to spread the cost and mitigate the risk of major financial shocks such as bad debts or sudden cost hikes.”