Cash flow a perennial concern

Cash flow is the major concern facing small business enterprises, according to two major national surveys.

Both showed between 30 and 33 per cent of small-to-medium business leaders cited cash flow as their biggest problem.

In a recent National Australia Bank survey, 30 per cent of respondents said cash flow was the number one issue.

This finding was supported by another, more small business focused survey by the Queensland-based internationally franchised Action International Business Coaching group, which showed 33 per cent of SMEs did not project their cash flow, leaving them strapped for cash.

The Action results, from more than 70,000 small business owners nationally, also showed 65 per cent of businesses believed cash flow was the major challenge in their business.

The figure was the same in last year’s survey.

“It appears the situation has not improved in the last 12 months. Despite high failure rates of small businesses in Australia, there is still not enough education or support given to business owners,” Action global marketing director Jodie Shaw said.

Concern about cash flow in the NAB survey overtook last year’s biggest headache, staff issues, which dropped to 6 per cent in the latest survey, from 29 per cent.

“A cash flow crisis can occur in the best business. Profit doesn’t automatically equal cash,” NAB executive general manager of business and private banking, George Frazis, said.

NAB chief operating officer Bruce Munro said that, as businesses grew, management could get too focused on expanding, rather than efficient revenue collection.

One solution to billing issues was invoice discounting, a product offered by a number of financial institutions, by which the institutions buy an invoice at a discount and thereby inject money into the company.

It used to be called ‘factoring’ and was a product that had lender of last resort connotations; but that has changed.

Michael Ratner and his daughter, Sharlene, are great advocates of the revitalised cash flow instrument since instigating it at their company, Compendium, which has the exclusive Australasian rights to a US range of cleverly designed inspirational, feel-good motivation products.

Another option is the use of credit cards. The Action survey showed 24 per cent of respondents were paying the majority of their business expenses by credit card, which Ms Shaw said simply made the debt cycle bigger and less manageable.

Other ways of overcoming cash flow problems included reducing excess stock or obtaining stock on consignment, getting payments from customers earlier and paying suppliers later.

The NAB survey also found that 5 per cent of business owners were facing heavier workloads than last year, which reflected a stronger economy.

“People are making the most of the opportunities that present themselves and that translates into a heavier workload, which can turn into stress,” Mr Munro said.

“When opportunities arise, the SMEs really have to follow it through.

“It may be driven by fairly full employment, with skills hard to get forcing proprietors to jump in because they can’t fund staff to cover some of their volume growth.”