Most small business owners dream of growing their business to be a larger and more profitable entity. For many, the biggest blocker to achieving this aspiration is cash flow. Slow payment from debtors or a large – and perhaps unexpected – bill can really put a squeeze on your finances, limiting your ability to invest for growth.
While Australian small businesses contribute around 70% of our gross domestic product, a recent study by the Australian Small Business and Family Enterprise Ombudsman suggests that only 7% of small businesses manage to push through to become larger businesses. Additionally, small businesses with an annual turnover of less than $50,000 are more than twice as likely to fail as businesses with a turnover above $50,000.
Why is cash flow management important?
Managing cash flow successfully is about more than just having enough money on hand to meet your day-to-day financial commitments. It includes taking a planned approach to growth, continually monitoring your financial situation, forecasting accurately, and having a solid plan in place if additional capital is required.
Businesses that provide credit terms for customer payment are at a higher risk of cash flow problems than those that require upfront payment or payment on delivery. Of course, you can control your credit terms but you can’t assume your clients will necessarily pay by the due date - a recent report from Xero suggests that customers generally take about 36 days to pay invoices with 30-day terms!
Your business’s approach to credit terms is likely to be somewhat dictated by the industry you operate within – however, regardless of industry, without a robust approach to credit management and debt collection, your small business is at a greater risk of insolvency.
Why would I need to access more capital?
Business growth is exciting, but it must be planned. Unless you’re thoroughly prepared to expand – including from a financial perspective – your small business is at significant risk.
While your cash flow requirements will depend on the industry you operate within, growing businesses often need to access additional capital to:
- Hire more staff
- Increase inventory
- Invest in additional equipment or space
- Prepare for peak periods
Without a solid plan to boost your cash flow when needed, your business may not be able to take advantage of some of these opportunities.
At Cashflow Finance, we work with small businesses across Australia to help them take control of their cash flow with fast and flexible invoice, equipment and trade finance solutions. We take the time to understand your specific needs and tailor a solution to meet your requirements. If you need support with debt collection or risk protection, we can help with that too.