Businesses of all sizes live and die based on cashflow –this is especially true for small and medium sized enterprises. Unlike large corporations that have more extensive financial resources and access to safety nets, SMEs tend to operate on tighter margins, leaving them vulnerable to SME cash flow problems.
Knowledge of potential cash flow pitfalls and ways to overcome them can go a long way in effective SME cash management. Professional assistance is also an effective and often invaluable resource for the SME that finds itself dealing with problems of cash flow.
Taggart & Partners are SME accountants, and we will help you understand the sources of your cashflow issues, in simple and easy to understand terms, and we will assist in the creation of proactive cash flow improvement strategies. Call us today on 07 3391 1188 or fill out the online form to get started.
SME Cash Flow Problems and Tips to Overcome Them
Late Payments (or Non-Payments) from Customers
Small and medium sized businesses need a constant flow of cash from customers to keep them business operating. The smaller the business, the most on the edge and vulnerable the firm is to the impact from late or non-paying customers. Good invoicing software can help with this by auto-billing clients and automatically following up with late or non-payers. Using this kind of software has the added benefit of freeing up time and energy spent on invoicing that can be used in other areas of the business.
Inventory Management Problems
There are entire textbooks and MBA courses dedicated to inventory management and how to maintain the best level of inventory. Having too little inventory means the business doesn’t have product to sell – too much inventory ties up funds leading to SME cash flow problems. So how is a small or medium sized business owner expected to keep the optimal amount of inventory in stock?
Start by getting one of those textbooks and reading it – you can probably get a good price on a used older edition that is no longer used in schools. Then implement a system or a combination of systems mentioned in the book. That could be a Just-In-Time inventory system, or a First-In First-Out system – there too many different inventory management systems to discuss here, but the correct one will depend on the unique nature of your business.
Dependence on a Few Major Clients
For a new small or medium sized business, signing a couple of major clients can be game changing, providing much needed cash flow to allow the business to grow and expend. But this is a problem when the business becomes overly reliant on those few big clients. What happens if one or more large clients fall on hard times? The solution is to always strive to have a diverse client base – something any small or medium sized business should be doing anyway. This creates steady SME cash flow and reduces risk.
Seasonality of the Business
Most business are affected in some way by the season, and some feel this effect more than others. Boat rentals and travel agencies are examples of businesses that have a very distinct busy season, followed by an off season. Building a cash reserve is key for businesses like these to survive during the slow time of the year. This cash reserve will be a certain percentage of profits, and how much of a percentage will depend on the business. It is important to get the numbers correct when establishing this kind of financial safety net, and professional assistance will greatly help here.
High Overhead Costs
This can be a tough one if much of the high overhead comes from fixed costs, such as rent, utilities and fixed salaries. But there is good news when it comes to other overhead costs – there are usually always aspects of operating expenses that can be improved and reduced. This can take the form of renegotiating contracts or implementing new technologies that will improve operating efficiencies. Professional assistance with overhead costs can pay dividends down the road and serve to keep your business on solid ground.
Taggart & Partners Can Help
When in doubt, it is always a good idea to seek assistance from an accountant that specialises in SME cash management. Taggart & Partners have built a strong reputation for successfully implementing cashflow improvement strategies that have taken countless great businesses just like yours from good to great. Contact us today to learn more about what we can do for you. Start by calling 07 3391 1188 or filling out the online form.