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Coronavirus: Majority of small businesses used personal money to stay afloat last year

Young female florist talking on the phone with a customer and carrying a clipboard while working in her flower shop
Accountants think the first priority for businesses should be ensuring they are well funded. Photo: Getty

Almost six in 10 (59%) small business owners reported using their own cash to keep their businesses afloat last year, as they grappled with widespread closures due to the coronavirus pandemic.

According to research exclusively given to Yahoo Finance UK undertaken by one of Europe’s largest small business lenders – iwoca, small business owners are also becoming increasingly worried about the viability of their business with almost four in 10 (38%) concerned they’ll have to close this year.

A separate survey, conducted during the same period, surveyed accountants — representing over 23,000 small businesses across the UK — to find out the most important things their clients should focus on in 2021.

It found that accountants think the first priority for businesses should be ensuring they are well funded.

The second most-cited priority, which seems to logically follow on from the first, was ensuring invoices are paid, with 48% of those surveyed stating this.

Almost a third (31%) said diversifying product offerings would be key for businesses in the coming year, while 28% said using government schemes would be key to survival.

Watch: What UK government COVID-19 support is available?

More than a quarter (26%) said transitioning to online should be a key focus of many businesses in the coming financial year.

When SME owners were asked the same question, the majority (60%) said they will focus on ensuring they’re well funded in 2021. Yet four in 10 (43%) still expect to need to use their own money to finance their businesses this year.

Colin Goldstein, Commercial Growth Director, iwoca said: “Using your own cash to fund your business clearly isn’t sustainable for most people.

"The overriding message from both accountants and our survey results is that business owners need to ensure they are well prepared financially for what will be a difficult year ahead. As we continue to endure national restrictions, it’s essential that SMEs have access to business loans where dipping into their own pockets is simply not an option.”

Alastair Barlow, Founder of flinder, an accounting, consulting and data analytics business based in London, said: “It’s quite typical small business owners launch their business with their own money but to continue to inject personal funds to keep the business afloat becomes stressful.

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"While it may seem like a simpler route, it’s unlikely to be the most relevant to fund the business. Cash flow for small businesses has always been a challenge and 2020 has both highlighted and exacerbated the short cash reserves that most small businesses operate under.

Barlow notes that with limited cash, understanding and optimising working capital is an important business skill – knowing where cash is tied up and how it can be converted to actual funds in the bank.

"Whether that’s getting paid faster by speaking to customers more regularly or understanding what stock is slow moving and carrying less of it, managing working capital can really help a business through an unprofitable (or pandemic) period," he continued.

“All businesses, large and small need to have clear visibility of cash flow to make well informed decisions today in order to help themselves tomorrow. Cash flow forecasting is fundamental to understand future cash requirements and any gaps in order to plan early and speak to the right people to support.”

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Iwoca has now distributed £280m through the Government's Coronavirus Business Interruption Loan Scheme (CBILS) and in June 2020 launched iwocaPay an online buy now pay later invoice checkout to help small businesses get paid.

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