You’ve probably heard the phrase ‘cashflow is king’ and with tough economic times for many Australian SMEs never has this been more true. Cashflow is what separates a thriving business from one struggling to stay afloat.
It encompasses all revenue generation, operational expenses and investment activities. Businesses that manage their cashflow efficiently ensure more cash is entering the business than leaving it which enables them to grow.
Get a cashflow plan
With the start of 2024, it’s important SME owners have a plan in place for their cashflow so they can invest in new growth opportunities, expand operations, acquire assets and explore strategic developments. Cashflow allows owners to realise their business goals but it’s important to have an accurate forecast.
Accurate cashflow forecasting is the foundation of sound and comprehensive management. It involves predicting future cash inflows and outflows so owners know when to expect periods of surplus and shortfalls and can implement strategies to navigate the challenging times.
Where it goes wrong
It’s a tough time for SMEs at the moment. Rising overheads, supply chain issues, high staff turnover and rising interest rates – it’s no wonder many are struggling with the day-to-day running costs.
Some of the top mistakes small businesses make when it comes to cashflow include
- Failing to manage payment delays.
- Expanding too quickly without enough working capital.
- Poor inventory management.
- Failing to generate new sales leads.
Get help
Whilst many businesses strive to reduce the time between invoicing customers and receiving payments to ensure positive cashflow this can become tough when some customers take up to 60 days to settle accounts.
Invoice financing, which is widely used by business owners in the US, UK and Europe is becoming more popular here in Australia and allows a business owner to unlock the cash that’s tied up in their unpaid invoices, providing a line of credit secured by the Accounts Receivables ledger. The financier gets paid when the debtor makes payment so there are no repayments to be made. Typically, businesses can access up to 90 per cent of the sale value of an invoice whilst continuing to offer credit terms to customers.
It’s an option worth looking into if you are a B2B business.
Have a back-up plan
Lastly it’s important to have a contingency plan in place. Know what resources are available to you if unexpected challenges come your way. Some businesses have an emergency cash reserve to cope with economic downturns or supply chain disruptions, others have assets they can quickly convert to cash, and others feel secure having an invoice financing facility in place.
Whatever challenges lie ahead for your business in 2024 going into the new year with a focus on maintaining positive cashflow puts you in the best position for growth and achieving your goals.
