We’re going to open with the obvious: managing cash flow is a vital part of running a business, especially for start-up businesses. “The Death Valley Curve” is the period where an abundance of new businesses fail, typically, this occurs within the first 5 years of opening. It portrays the drop in finances where outgoings are high, and income is fatally low.
For businesses, outgoings at this time include standard setting-up fees or purchases, such as:
- Product production.
- Research and development.
- Marketing.
- Office rental.
- Staff wages.
These costs tend to be paid out prior to a product or service being sold. Leaving the business with low, or no incoming finances. Typically, businesses will use savings, or funding in the early stages to aid with cash flow. The longer it takes for products and services to be sold … the longer the journey through Death Valley persists. Without resources, there is no survival.
The office of National Statics holds figures which portray how many new businesses were formed in UK each year. To build out the picture, we will focus on two periods:
2016-17 – 664,750 businesses opened.
2019-20 – 665,495 businesses opened.
What are the survival rates? The ONS discovered; of the businesses started between 2016-17:
- After the initial 3 years just over half remained trading (54.10%)
- By the 5th year, only 38.40% of these businesses remained open.
Similarly, of the businesses established between 2019-20: 55.90% survived into their third year.
As you can see, establishing a new business and remaining open passed the first 5 years, are two separate challenges.
Cash flow in the early years.
Products and services reaching the market isn’t the final hurdle for cash flow issues. Payment terms can vary between 30 to 90 days from the point of sale. If the business is service based, employees are typically paid before the company receives payment from their client. Effectively, it can take months for a business to be in receipt of their invoices, whilst their outgoings remain high and continuous.
Whilst there is a business to run, more often than not, small businesses struggle to find the time to invoice. This is a major problem for cash flow, clients can’t pay what they’re not invoiced for.
Help is available, in many forms.
Funding options and support.
Businesses who are struggling with cash flow issues, can reach out to professionals for guidance. There are several specialists who can support the business. Local government specialists, business consultants, accountants, bankers, solicitors, finance brokers and of course, peers & mentors.
Should the business decide to seek funding as a solution to stabilise cash flow, there are many options available:
- Business loans.
- Cash flow finance.
- Invoice finance.
- Factoring.
- Credit control.
- Merchant cash advance.
- Equity finance.
- Grants.
With the right support and financial backing, new businesses can grow and thrive within the right environment.
Chris Falby
Regional Sales Manager
Mobile : 07944 796311
