Are Aussie small businesses on the brink of a cash flow crisis?

A perfect economic storm of high-interest rates, cautious consumers and increased competition is likely to lead to choppy waters for the small businesses at the heart of the economy writes Emma Fawcett, General Manager, SME at MYOB. So, what can you do to avoid capsizing?

MYOB’s September 2023 Small Business Health Index shows cash deposit markers are behaving very differently this year when compared to 2021 and 2022. The data shows that from June, the rate of cash deposits has been in decline, while in previous years, as the year progresses, deposits would steadily increase.

Our data also shows EFT deposits, which is a marker of a consumer-facing business such as retail or hospitality, are flat compared to the growth trajectory of 2022. These factors combined make the case for a potential cash flow crisis among Australian SMEs in the coming months.

The good news is there are actions you can take now to bolster your business’s cash flow as we head into the tail end of 2023, while also setting up a healthier pipeline for 2024.

Forecast your immediate future

If your focus has been on the daily operations of your business, rather than a healthy cash reserve, now is the time to forecast your cash flow for the coming months. Look at the money that will be coming into the business, and also take stock of any upcoming expenses, so that you have a clear picture of what’s coming in and out of your bank account in the next three months.

This will then give you foresight around your business cash flow, to help you make informed decisions about what’s next.

Get proactive about payment

How easy are you making it for people to pay you? Think about:

• When are you invoicing – are you waiting until the tail end of a project or product delivery to raise one? The sooner that invoice is sent, the sooner it can be paid.
• How many days are you giving customers to make payment? Could you reduce your payment terms to help with cash flow? Shorter payment times can help small businesses so much that the federal government legislated the Payment Times Report, compelling all Australian companies with a turnover greater than $100m to report on how long it takes them to pay their small business suppliers.
• Are you making it as easy as possible for people to make payments, with a variety of options for payment or direct transfer? In 2022, mobile wallets accounted for roughly half of global e-commerce payment transactions. Estimates are that out of approximately 2.8 billion mobile wallets in use worldwide, nearly half were in Asia-Pacific alone. Make sure you have mobile wallets and contactless payments available for customers.
• Are your point of sale systems making it easy for payment? Shopify, Square and Stripe are just some of the many options available to make sure customers can pay easily and the money can go straight into your bank account.

This is a critical time to remove any barriers to payment and keep the earnings flowing.

Pull the right levers

Every business has levers to pull that will have a knock-on effect on cash flow. These are levers that will boost sales, improve profit and reduce costs.

So, think about which levers you could pull right now.

• Could you get strategic about your sales and bundle popular products to boost conversion?
• Could you reach out to past customers with a new impossible-to-resist offer?
• Could you start pre-selling for the new year?

Spend some time looking at the most profitable parts of your business and think about how you could grow these to boost cash flow. Take a critical look at your expenses.

Then, be ruthless. What’s not serving you right now? And what could you press pause on for the next 3 to 6 months? Can you hold off on bigger purchases or press pause on any recurring services that you don’t use every month? Cutting costs is just as important as boosting revenue when it comes to a healthy cash flow.

Talk to your bank or non-bank lender

It’s worth having a conversation with your bank to find out if there are more competitive interest rates available, whether you could benefit from new products, or if you could access a loan facility.

Just having the chat will get you thinking about your finances more holistically and the ways you can move and improve your cash flow.

Be cautiously optimistic

 Whether your pipeline is looking healthy or not, it pays to be cautiously optimistic. By taking strategic steps now to set your business up for near-future success, you’ll be giving yourself the best possible chance of surviving any tough times ahead. But it’s also worth considering that now might not be the best time to invest in major capital projects such as new equipment, property or infrastructure. These decisions can be easily considered if you’re using tools that give you good cashflow visibility so you can plan for the coming months.

Whatever you decide, give yourself the advantage of taking action now, rather than waiting until the cashflow canary falls off its perch. At the very least, you’ll be well positioned for a strong finish to 2023, before stepping confidently into the second half of the financial year, armed with knowledge and a plan.

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