Cash Flow Forecasting Is Paramount This Year, Warns Hitachi

Demand for alternative finance is on the rise among small and medium-sized enterprises in the U.K., according to new analysis from Hitachi Capital Invoice Finance. But even with access to capital, not all SMEs will see success this year.

According to researchers, who released their findings on Friday (Feb. 12), the ability for smaller businesses to access accurate financial forecasting tools will be paramount in these companies’ survival.

Hitachi examined its funding data for the report, which concluded that SMEs have a heightened demand for working capital financing. In the tax year beginning April 2015, SMEs saw more than $1.2 billion in financing from Hitachi Capital Invoice Finance. According to the company, that’s an increase of more than $26 million from the year prior.

Looking ahead, the firm’s head of commercial business, John Atkinson, said 2016 will be an interesting year to watch.

“Business activity in 2016 is likely to be impacted by a number of external factors in what is set to be a volatile landscape for political and legislative change,” he stated. “Many of our customers have found it necessary to pursue alternative routes to finance, as banks look to reduce the risk profile of their lending portfolios.”

According to Hitachi, SMEs will need to more adequately examine past financial data and access more robust forecasting capabilities to remain successful this year.

Researchers also found several periods of the year that can be particularly difficult for small business cash flow. October, for instance, can squeeze SMEs as they gear up for the holiday season with new hires and investment in inventory and other materials.

New legislation coming into effect in April will further impact employee compensation for certain members of the workforce. April and July are two months when the workforce can be depleted, researchers added.

“It is vital that SMEs pay close attention to their working capital during 2016 and retain the agility to react to market changes,” Atkinson stated, adding further factors that are likely to impact the business climate this year: “The EU referendum, which is due to be held as early as June, alongside expected rises in interest rates, could impact business confidence.”

“For firms that manage to protect cash flow, either organically or via the sourcing of external finance, success, stability and growth await,” he said.