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17 March 2016 - 4 min read
Business Strategies
About half of small businesses won’t make it past the three-year mark, according to the Australian Bureau of Statistics.
In the last financial year, almost 80 percent of those going under were small businesses according to the Australian Securities and Investments Commission (ASIC).
According to ASIC, “inadequate cash flow or high cash use” was the main cause (40 percent) followed by poor strategic management (42 percent).
Cash flow management was also one of the biggest challenges facing small businesses interviewed for the latest DFA Small & Medium BusinessSurvey, which noted that 57 percent of all business borrowing was for working capital.
The survey of 26,000 businesses, with turnover of less than $5 million, stated extended payments terms and late payments was hurting them most. With average debtor days dragging out at between 50 and 60, managing cashflow was easily the main pressure point for SMEs.
We have already outlined three key areas you must address.
1. Make a cashflow audit and projection
2. Make it easy to get paid
3. Update your technology
4. Get paid immediately
Are you invoicing on delivery or monthly? The difference could add (or subtract) thousands of dollars to your bottom line each financial year. Better still, ask for a deposit (particularly on large or special orders). The less time you are out of pocket, the better.
Hoopmann said be upfront early about your terms of trade.
“When you engage a new customer, be clear about when you expect to be paid and stick to it. If you are clear upfront, it makes it easier down the track,” he said.
“Our business is a little different to others. We offer a monthly service, so we send out our monthly accounts on the first or second working day of each month. This also helps our customers budget their outgoings.
“If you value your work, the customer will. If you let your invoices slide a few months, even into the new financial year, you are inviting customers to make it difficult to pay. They will complain about your fees.”
Here are few tips to get paid quicker:
Useful tools:
Debt collection template forms: Find it here.
5. Get the best deal from suppliers
Price comparison sites are the norm these days. Want to get a good deal on a mobile, car insurance, or a TV? There’s a site for that and your customers are well aware of it. So why aren’t you doing the same as a business owner.
You are the customer to your suppliers, whether it’s for inventory, utilities, or the lease on your EFTPOS terminals, so start acting like one. Hoopmann said managing your suppliers means more than understanding their payment terms.
“Firstly, see if they are still relevant for your business. If they are, then you should regularly review their services and provide feedback which may help in managing increasing costs in the future,” he said.
Here are some questions to ask:
Useful tools:
Compare electricity and gas: Find it here.
Find a SME advisor here.
Read part one of our Five-step guide to a killer cashflow.
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