The flexibility of targeted
cash flow finance helps cash-strapped businesses outperform users
of more traditional forms of finance, writes Hilton-Baird’s Evette


Photograph of Evette Orams, Hilton-Baird Financial SolutionsDespite a more
positive macro picture, it is an unfortunate fact that the
financial health of many UK businesses has deteriorated during the
six months leading up to April 2011.

This is partly due to
businesses being faced with a surge in operating costs and a fall
in new orders, as suggested by the latest SME Trends Index
from Hilton-Baird Financial Solutions.

The twice-yearly survey
provides a comprehensive picture of the challenges currently faced
by UK SMEs, and reviews a range of variables including bad debt
levels, tax arrears, turnover and profitability, in order to
calculate the financial health of UK firms through the Business
Health Index

Findings revealed that the
financial wellbeing of UK businesses has declined, as the overall
index fell to 0.35 from the 0.49 recorded in November last year.
This fall was despite the positive economic growth recorded in the
first quarter of 2011.

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On closer inspection the
situation appears to be more concerning.

Of the 576 business owners
questioned about their business’ finances and growth prospects, a
staggering 76% reported a rise in operating costs during the
preceding six months. Only 58% of those questioned won new
contracts, causing the overall index to fall considerably since the
previous survey.

It is therefore unsurprising
that business confidence has taken a major hit as a



Many businesses have
expressed concern over their growth prospects, with only 33%
expecting their business to grow in the following six months – a
considerable decline from the 45% recorded last

Over a quarter (28%) are
primarily concerned about generating and winning new business
during this period, with a further 17% anxious about the rising
cost of fuel and new materials and 15% also worried about managing
cash flow.

With numerous business
concerns in mind, the importance of securing the most suitable and
reliable funding solution is paramount.

Pull quote by Evette Orams, Hilton-Baird Financial SolutionsA tailored facility
will ensure your business has the ability to maximise opportunities
when they arise while protecting the business against common

However, overdrafts and
credit cards remain the most popular methods of funding among SMEs
and are currently used by 44% and 42% of respondents

Conversely, asset finance
(25%) and invoice finance (21%) solutions are used by significantly
fewer, despite the study finding that users of targeted cash flow
finance fare much better than those who solely rely on more
generic, traditional sources of finance. This is perhaps a result
of the flexible and targeted cash flow support such solutions
typically provide.

For example, the Business
Health Index
revealed that asset finance (0.7) and invoice
finance (0.62) users considerably outperformed those using credit
cards and loans from family and friends (0.23) and bank overdrafts
(-0.05) to fund their business.

Further, while 52% of invoice
finance users and 47% of asset finance users reported a rise in
turnover over the same period, only 40% of those using credit cards
and loans from family and friends and 37% of overdraft users were
able to boast the same.

Similarly, while
profitability rose at 41% of both invoice finance and asset finance
users, just 33% of those using credit cards and loans from family
and friends and 30% of bank overdraft users were able to report the
same good news.

As a result, asset-based
finance users were more optimistic about their business’ future.
The research showed 41% of invoice finance users and 39% of asset
finance users expect to grow over the next six months compared to a
lower 36% of credit card or loan users and 33% of those using bank



These figures serve to
emphasise the benefits of asset-based finance solutions and show
the crucial support they can provide businesses.

The latest Asset Based
Finance Association and Finance Lease Association statistics
further demonstrate how these forms of finance are very much
available to businesses of all sizes. The statistics also highlight
the various benefits of asset-based finance as a vital funding tool
during uncertain times.

It is possible the majority
of SMEs are sticking with more traditional funding options due to a
fear of the unknown or simply a lack of awareness to the other
options available.

Given its flexible nature,
invoice finance can supply users with the necessary cash and a
facility which grows in line with the business – provided they are
using the most suitable facility for their business.

Independent commercial
finance brokers are an important resource when investigating
suitable funding options.

Their knowledge and ability
to successfully match individual businesses’ cash flow needs with
the most appropriate funding facility can ensure that a business
reaps the rewards in the future.

Evette Orams is managing
director of Hilton-Baird Financial Solutions Ltd