Despite a wide-held perception that businesses that have been around for at least five years have a better chance of survival, new research indicates that such businesses will not be insulated from the impending economic crisis. However, they are seen to have the advantage of having the funds necessary to either exit graciously or recreate their business model, given the positive cashflow they tend to have.
A survey of 261 Australian business owners, commissioned by online financial information platform Money.com.au, reveals that 61 per cent of established business owners whose businesses have been in operation for at least five years said they are at a stage where they are paying themselves comfortably. This is slightly above the 56 per cent figure among owners of businesses younger than five years old.
Money.com.au also found that established and young businesses are almost on an even playing field when it comes to their ability to project profits, with 58 per cent of established businesses and 49 per cent of young businesses saying they can forecast their profits over the next 12 months with reasonable accuracy.
The survey also reveals both established and young businesses experiencing significant ups and downs in revenue between months, at 34 per cent for young businesses and 35 per cent for established businesses.
While the overall survey indicates that all businesses – regardless of age – are in the same vulnerable financial position, there is a silver lining for established businesses. More than half (53 per cent) do not experience cashflow problems – indicating that they may have a good buffer if they decide to fund their business with their savings. In contrast, two-thirds (64 per cent) of young businesses admit they experience cashflow issues, with 14 per cent saying their cashflow issues are serious.
A higher proportion of established businesses also turn over higher profits: 20 per cent make more than 30 per cent profit on revenue, compared with half the amount (10 per cent) of young businesses who make the same level of profit.
“The one advantage established businesses have over young ones is time. As they have been around for some years, they have developed long-standing relationships with clients or customers, and better understand their product or service,” Financial advisor and Money.com.au spokesperson Helen Baker said.
“They are also in a better position to know how loyal customers are to them – which helps them make forecasts – and understand how they sit in relation to their competitors,” Baker added. “In turn, this helps a business better manage cashflow. With Australia having teetered on a recession the last few years, some established businesses got their finances in order early on, so they have had more time to create a buffer. Maintaining positive cashflow and having a flexible balance sheet can help businesses respond quickly during a downturn.
Baker said that SMEs, particularly those in their first decade of business, need ongoing support.
“The Government has introduced new loans – under the RBA’s facility of low-rate loans – to help businesses during the pandemic and online finance platforms such as Money.com.au help businesses of all sizes secure loans,” Baker said
“I encourage business owners to research and review what schemes can help them get ahead. If they are in the three-to-five-year stage of their business – normally when expansion commences – and are feeling reasonably confident, the grants can help them grow. For others, financial assistance could keep them afloat.”
