3 Powerful Ways to Get Better Cash Flow (in your wallet) By Christmas
We are on the countdown to Christmas and it’s crunch time for many small businesses.
In an article by James Dunn, ‘Backbone of economy showing its strength’ in the Financial Review, he raised the importance of small business and it’s impact on the economy.
He wrote, “It is a constant refrain, that small business is the backbone of the economy: and the latest statistics bear it out. According to the Minister for Small Business and Assistant Treasurer, Kelly O’Dwyer, small businesses have never been more important to Australia: the more than 2 million small businesses employ more than 4.5 million Australians – almost 40 per cent of the total labour force, and half of the private-sector workforce – and contribute more than $340 billion to our economy every year..”
Yet the odds seem against small business succeeding according to stats released by ABS & AISC:
- More than 60 per cent of small businesses cease operating within the first three years of starting.*
- 44 per cent of businesses who became insolvent suffered poor strategic management **
- 40 per cent of businesses who became insolvent had inadequate cash flow or high cash use
There seems to be a disconnect between the amount of entrepreneurial Australians taking the plunge to become a business owner, and actually being equipped with the skills to properly managed the financial challenges of growing and running a successful and lasting small business.
I have built my whole accounting business around helping SMEs stay in business when the going gets rough.
Having come up against my own struggles in the 9 years I’ve built my business, I wants to give the strategies I developed to grow my business to the small business community at large.
There are three key areas of business finances where businesses come unstuck as they start to increase their profits and growth that can ultimately lead to have to close their doors if not managed in time.
When it comes to cash flow not knowing these red flags ends up costing business owners money and sometimes their business if they don’t find us in time.
Knowing these brings money back into your business and sets you aside from your average Joe Blow business owner into a fair dinkum guy, to someone who’s actually serious about your business.
Here are my three tips in short:
- Know your numbers – Without cash you have no business. You need to know every dollar that comes in and goes out of your business. It’s surprising the power of intimately knowing your numbers and how many people are not truly across them. When you take the time to know your numbers you can more easily identify things that may not be crucial for current business operations and can free up needed cash flow. Also, knowing your numbers and when cash is coming in or out can help you make better purchasing decisions to help maintain cash flow.
- Don’t let company debts become personal debts – At some point in your business, you may find yourself with high unexpected company debts and not know why. Ensure you understand where your debts are coming from and work with a qualified and trusted accountant to pay those debts off in a timely manner otherwise they may become personal debts and you could lose more than your business. When you work with a qualified accountant to ensure your debts are correct, and managed across a reasonable time frame, you can also better manage your cash flow by creating a schedule that works for your business.
- Always review your business structure – As your business grows, you get more money, more clients and more profits. While more profit may sound ideal, it also means more tax. Obviously more profits mean more cash, but if you aren’t managing the tax obligation side of the business that cash could quickly be going straight from your business to the tax office. Reviewing your business structure could help you get better taxation regulation and ultimately more money in your business bank account. It’s important to always review your business structure with your accountant so you have the best structure to minimise tax debt and maximise your overall profits at the end of the year.