04/02/2009 - 22:00

Fiscal prudence urged for SMEs

04/02/2009 - 22:00

Bookmark

Save articles for future reference.

SMALL business has been urged to manage their cash flow more carefully this year as the global economic downturn creates more financial pressure.

SMALL business has been urged to manage their cash flow more carefully this year as the global economic downturn creates more financial pressure.

Insolvency and advisory firm PPB said although times of economic turmoil can often present opportunities for astute and cashed-up companies that understood their markets, small business in particular needed to be aware of their cash flow position.

PPB partner Simon Theobald said no industries were immune from the impacts of the economic downturn, but company directors could take steps to protect themselves and their companies.

"Companies which suspect they are in financial difficulty should initially consult their accountant to assist them to determine whether the issues they are confronting are short-term and can be overcome, or whether advice from a specialist recovery firm may be required," he said.

"Small businesses in particular need to be aware of their cash flow position. In addition, they need to ensure that, where they do not have the skills to handle issues they identify themselves, they obtain appropriate professional advice."

Mr Theobald said company directors should regularly review their trading position, including actual performance against a set budget, form and review key performance indicators such as sales and gross profit margins, and keep abreast of trends affecting their industries.

He said warning signs that a business was in financial difficulty included those with declining revenue and/or margins, are late in paying statutory payments such as tax and employee superannuation, are unable to pay creditors' accounts in full when due, have been placed on stop credit or cash on delivery terms with suppliers, and regularly exceed bank overdraft limits.

A Dun & Bradstreet Quarterly Trade Payments Analysis has revealed that businesses were averaging almost 57 days to settle accounts in the December 2008 quarter, the highest level since 2001.

Commonwealth Bank of Australia executive general manager, local business banking, Symon Brewis-Weston, said the sooner businesses warned banks of their financial stress the more options there were available to them.

"People are frightened because they think the first thing we'll do is shut them down," he said.

"That's not actually what we want to do because if we shut people down ultimately very often we end up taking losses. There's a lot more we can do before you hit the wall than after you hit the wall."

Mr Brewis-Weston said banks could restructure loan facilities, offer new packages, or allow the business to temporarily change to an interest-only loan.

Chamber of Commerce and Industry WA said access to credit was a major concern for its members.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

Subscription Options