Under-Explored Opportunities SME Owners Can Use To Improve Cash Flow

Currently, one of the biggest concerns dominating the minds of business owners is cash flow. When reviewing strategies to free up cash, SMEs should leave nothing off the table.

For some businesses, the strategic, long-term planning that they are used to is difficult right now. It’s hard to predict how much money they’re going to be bringing in, and the funding and relief available continues to shift under government intervention.

The good news is that there are lots of measures that businesses can take to mitigate the impact of uncertainty and to improve both immediate and long-term cash flow.

When looking at ways to improve cash flow, it’s crucial for businesses to consider every angle.

Hidden Cash

You could be sitting on funds that you’re not even aware of. Whether it’s R&D, Patent Box, Capital Allowances or more sector-specific schemes such as creative industries tax reliefs, such tax incentives can go a long way in easing your cash flow.

Despite the rising number of R&D claims in the last few years, a great number of businesses are still missing out. Whether profitable or loss making, R&D tax relief even stretches to unsuccessful projects, rewarding the effort not the outcome.

Super Deduction

One of the standout announcements in the Chancellor’s Spring Budget was the super deduction – allowing businesses who are investing in qualifying new plant and machinery assets to claim a 130% super deduction. It will allow companies to cut their tax bill by up to 25p for every £1 invested, making the UK capital allowance regime one of the most competitive in the world.

If your business is looking to invest, the super deduction could be a highly effective way of freeing up cash that would have otherwise been tied up.

Loss Carry Back Rules

If your business was making a profit before the pandemic and has since come into financial difficulty, the new loss carry back rules could be a lifeline.

The new measure allows losses which have come about between 1 April 2020 and 31 March 2022 to be carried back up to 3 years and offset against profits in those years, instead of the 1 year which was previously standard.

Staff Incentive And Employee Ownership Schemes

Employee Ownership Trusts and Share Incentive Plans are growing in popularity as a means of improving staff motivation and loyalty while also generating cash for the business.

Since their introduction, Employee Ownership Trusts (EOTs) have continued to grow in popularity. Similar to the John Lewis model, they involve some or all of a company’s shares being sold to an EOT, which pays annual dividends to all employees (tax free up to £3,600).

The shares are sold for full market value free of Capital Gains Tax, which is appealing to the selling party. While the EOT offers attractive long-term incentives to staff, it suits some businesses more than others, for example, the Private Equity model, which is likely to be very profit-focused after the sale.

The Road Ahead

Although times are hard, these measures to improve cash flow have seen many SMEs through the difficult coronavirus restrictions. If strong businesses have suffered a temporary dip in income, there are plenty of ways in which business owners can seek support until markets recover.