27/08/2008 - 22:00

Cash crunch for small business

27/08/2008 - 22:00

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Many Australian small businesses are headed for a cash crisis in the wake of the global credit crunch, a CPA Australia survey has concluded.

Many Australian small businesses are headed for a cash crisis in the wake of the global credit crunch, a CPA Australia survey has concluded.

The latest CPA Australia Small Business Survey showed that cash-flow problems and pressure on profit margins were being experienced by many small businesses.

Increasing the likelihood of these becoming worse is a finding that many smaller enterprises may not be undertaking normal business processes, such as preparing cash-flow forecasts or chasing up late payment of debts.

"In the current economic climate especially, business owners don't want to be caught short by not knowing what's going on. This survey reinforces the need for businesses to have relatively simple processes in place in order to manage their finances," CPA Australia business policy adviser Gavan Ord said.

''It found that 41 per cent of respondents never prepare cash-flow forecasts, and 25 per cent never chased up late payments. That could be a recipe for disaster.

"Keeping your books up to date, preparing budgets, including cash flow forecasts and comparing actual results against budgeted results are essential to the proper management of business."

The survey responses show that 72 per cent of small business operators would seek a short-term injection of funds in times of financial difficulty and 71 per cent believe their financial institution will be accommodating and flexible in such circumstances.

"The current credit crunch indicates that such confidence may not be realistic,'' Mr Ord said.

"This has potentially serious implications for some businesses. It means that many businesses will need to look at unlocking their hidden cash to improve their cash flow rather than rely on external sources of finance. The key to finding such hidden cash is updated financial records."

Other key findings in the survey include:

- 39 per cent of small businesses that have borrowed funds, do not know the interest rates on those borrowings;

- small business confidence remains reasonably high, with 66 per cent of those surveyed expecting their business to grow in the next few years; and

- 36 per cent of those surveyed had to borrow in the past year for business survival, with banks the most common lender.

CPA Australia has issued a guide aimed at helping businesses manage during tough times. Its 'managing in times of financial difficulty' checklist includes tips on how to improve business cash flow, financial position and profitability.

"The checklist aims to help businesses through times of difficulty, whether that difficulty is due to the broader economic cycle or due to internal factors," Mr Ord said.

The CPA Australia Small Business Survey was held in May. It comprised a nationwide sample of 500 small businesses (up to 20 staff) and 200 CPA Australia members in public practice with small businesses as clients.

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