The new financial year has arrived, but for SMEs it’s no time to sit back and relax. Rather, it’s the perfect time to review business practices and get your business off on the right foot this financial year.
Prushka’s bi-annual survey of over 700 SMEs found over 50 per cent feel positive about the future of their business, however, there are still underlying concerns about profitability, growing customer base, and unpaid debts. While these concerns are serious, there are a few actions to take now to address these potential issues, before they become real problems.
The survey also found SMEs have become more financially self-reliant, with banks increasingly less relevant to the sector. For this very reason it is essential to look at efficient ways to preserve cash to survive, and even thrive, should there be any changes in the economic environment.
With tax time behind us, the new financial year is the perfect time to assess cash flow and businesses process and start afresh with a clear strategy in place. But where to begin?
Be aware of your cash and plan
To ensure you have a clear picture of your business’s financial situation, look at your bank balance. Keep in mind that this is never a comprehensive guide to liquidity, but it is essential to safeguard – start by make a habit out of checking balances daily. Avoiding the situation by putting your head in the sand and waiting for the banks to call, or for cheques to bounce is dangerous and can quickly turn your relationships with creditors sour, so be proactive in making changes. Monitoring cash inflow against outflows ensures you know your shortfalls, and can aim to predict them. When slow periods arrive, you will be prepared allowing for loans or keeping a surplus on hand.
To put it simply, reducing operating costs is the most effective approach to improving cashflow. Think about the different options you might have available, like moving to cheaper facilities, reassessing the cost of utilities, or reviewing number of employees. The most important thing is to be proactive, rather than waiting for times to get tough.
After reducing costs look to negotiate with your suppliers to ease expense pressure – a good way to do this is to negotiate payment terms rather than purchase price. This approach is ideal as negotiating price could get your suppliers offside. Try having your major suppliers agree to accept payment within 60 or 90 days from purchase, which usually will ease some pressure on immediate expenses. Don’t be afraid to shop around if you get resistance from your current suppliers.
Invoice early and offer discounts
You should always aim to invoice as quick as you can, any time wasted translates to time waiting to be paid. Its good practice to get into the habit of following debtors up by phone with a friendly reminder – it’s amazing how this encourages on the spot payments. Another way to incite quick payments is to offer discounts for early payments – customers are more likely to pay early if there’s something in it for them.
Ultimately, you need to recognise the bigger picture. Be wary of getting too consumed by the day to day goings of your business, and ensure you to take a broader look at the overall financial performance of your business.