According to analysis of more than 5,000 UK businesses from Lloyds Bank Commercial Banking, London businesses have around £188 billion tied up in working capital.
Working capital is defined as the difference between a company’s current assets (cash, accounts receivable, and inventories of raw materials and finished goods) and current liabilities, such as accounts payable. It is a common measure of a company’s liquidity, efficiency, and overall health.
Tying up too much money in day-to-day costs puts pressure on cashflow and, with working capital accounting for 11 per cent of London firms’ revenue, businesses could find themselves ill-prepared to respond to any sudden changes presented by Brexit.
On a national basis, the amount of money tied up in working capital by UK firms has increased dramatically by 37 per cent in the past 12 months to £680 billion. This can partly be attributed to the fact that businesses are growing, but also because they are becoming less efficient at collecting cash from their customers. This is a particular problem for small businesses.
Stephen Hand, Area Director for Global Transaction Banking in London, says: “It’s encouraging that more firms in London are accessing tied up cash from their working capital, to pay down any debt or fuel growth.
“Companies with a healthy cash flow are in a stronger position to take advantage of new trading opportunities, domestic and overseas, and pursue ambitious expansion plans.
“But firms across the capital still have work to do. Businesses in London that fail to manage cash flow effectively may struggle to deal with a potential interest rate rise later this year, or to take on the opportunities and challenges created by Brexit.”
In this volatile business landscape, it is more important now than ever that SMEs partner with an adviser who will implement processes to improve profitability, working capital and cashflow, enabling their businesses to be more agile and flexible to respond positively to the changing economic landscape.
At Beavis Morgan, we work with a wide range of businesses of all sizes and across many different business sectors, helping them with strategic planning, system implementation, business turnaround and improving business performance for the future.
Our diverse team of tax professionals are also committed to ensuring that your tax reporting obligations are fully satisfied and that every opportunity to lawfully exploit tax savings is made known to you, restructuring your affairs in a tax effective and efficient way.