Covid-19 has really brought a two-speed economy to the fore in Australia.
For some businesses, the stop-start-stop nature of the pandemic has crippled cash flow and made planning ahead all but impossible.
Meanwhile other businesses, such as those in the digital space, are experiencing fast growth.
Your cash flow strategy this financial year will likely depend on how the pandemic is impacting it, that’s why our lender partner ScotPac have identified three cash flow management strategies for businesses growing and struggling.
Three cash flow tips for managing growth
1. Find a flexible source of funding
Strong cash flow is important for fast-growth businesses, which often have lots of cash tied up with debtors, ScotPac Senior Executive, Craig Michie says.
“It’s important to find a source of funding that grows as your business grows. With invoice finance, as your debtors grow, so does the line of credit you can access,” he says.
“Another consequence of fast growth can be a demand on the business to put in place more capital assets, such as vehicles and equipment. In these situations, asset finance can help a business get the assets they need to support their rapid growth.”
2. Negotiate with suppliers
Sometimes businesses can grow too fast for their suppliers to keep up with their demand for product.
If you don’t have the cash flow to pay your supplier for more product up front, you can attempt to renegotiate terms with them, or seek alternative finance options.
“One option for fast-growth businesses to have up their sleeves is to use trade finance. This ensures they can pay suppliers upfront so they can meet their increased demand for product,” Mr Michie says.
3. Cash flow forecasting is vital
Cash flow is often described as the “lifeblood” of businesses.
Knowing what cash is likely to be coming in, and what’s likely to be going out, is therefore vital for not only keeping your businesses alive but ensuring it will thrive.
“It’s not unusual for a small business to spend months winning big new clients, then realise they had not accounted for the cashflow implications of winning new business,” Mr Michie says.
“Putting in place a 13-week rolling cash flow forecast – which really would only take an hour with your accountant to set up, helps fast-growth businesses avoid cash flow issues.”
Three tips for getting through tough conditions
1. Get in touch with funders and tax office
With several recent state lockdowns, and ongoing uncertainty, many businesses are doing it tough.
Mr Michie says it’s crucial for businesses struggling through adverse trading conditions to talk to their financiers asap.
“Do this early in the piece to get the best outcome. Talk to your funder about whether it’s possible to restructure or to put in place moratoriums,” he says.
He adds SMEs shouldn’t put off talking to the Australian Tax Office either.
2. Look at your balance sheet
To help secure working capital for your business, Mr Michie suggests looking to the assets on your balance sheet.
“Balance sheet assets can be a hidden resource for many SMEs – your debtor’s ledger, unencumbered plant and equipment and even inventory can be used to bring working capital back into the business.”
3. Again, cash flow forecasting is vital
Mr Michie says having a running 13-week cashflow forecast lets business owners spot any cashflow gaps on the horizon, with enough time to do something about it.
He suggests this could include reassessing your cost base, negotiating with creditors to change terms or defer payments, or chasing up aged receivables.
If you’d like to discuss how any of the above cash flow tips or finance options could help your business, get in touch today. The sooner we can run through your options with you, the better placed your business can be.
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