Cash-flow management crucial for small businesses

25/02/2009 - 22:00

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WHEN the economy takes a turn for the worse, smaller firms can be the first to suffer.

Cash-flow management crucial for small businesses

WHEN the economy takes a turn for the worse, smaller firms can be the first to suffer. Pressure on cash flow increases and customer demand can dry up.

With the world economy likely to face a tough year in 2009, Western Australian small businesses can improve their chances of surviving the downturn by concentrating on a few fundamentals.

Cash-flow management is the first crucial issue for any small firm, regardless of the business it's involved in. Businesses need to ensure they have sufficient cash coming in to meet all of their financial obligations, or else their survival can be at risk.

For those running a business, good cash management involves keeping accurate records of your financial situation on at least a monthly basis, so that you know exactly where you stand.

Make sure you don't let any outstanding accounts (such as debtors and accounts receivable) blow out. If possible, try to ensure that payment is received on an immediate basis. You can do this by offering your customers an Eftpos facility and/or credit card access. These can encourage customers to pay on the spot - but a surprising number of small businesses don't have them.

Keeping the books in order is also critical in protecting your business from fraud. When times get tough, scammers become more active, seeking to exploit struggling business owners. They target businesses through fake invoices, convincing them to sign up for bogus directory listings or internet services, or by offering unbelievably good investment opportunities.

By keeping a close eye on invoices and ensuring the same person deals with them every time you are less likely to be tricked into paying the same bill twice.

The security of being part of a franchise system can be an attractive option for prospective business owners during tough times.

Australia has one of the world's best-regulated franchising sectors, with all businesses required to abide by the Franchising Code of Conduct.

Despite those protections, many franchisees fail because they don't do enough research into the business they are joining, fail to consider how long it may take to make a comfortable profit, or are unprepared for the rigours of running a small business. The ACCC has a wealth of free information on how to research a franchise before joining.

Holding onto existing regular customers is also going to be crucial when people start to tighten the purse strings. These are your most valuable clients and it is worth asking yourself whether you have any incentives to keep their loyalty, and if you are you listening to any concerns they may have.

When things get tight, the fundamentals of good business become even more important.

Those businesses that are disciplined in their financial and customer management skills are the most likely to ride out the storm in good shape.

n Dr Michael Schaper is deputy chair of the ACCC and an adjunct professor at Curtin Business School.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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