Cash is king for Australian small and medium sized enterprises (SMEs). Without enough money in the bank you can't pay suppliers, employees or ongoing costs, and your business will surely struggle. It's no wonder that the Victorian State Government estimates that 80 per cent of Australian businesses fail because of cash flow problems.
With an eye to helping your business, let's have a look at three common causes for SME cash flow problems as well as a few useful budgeting solutions.
1. Late paying debtors
New research from The Invoice Market shows that Australian SMEs are having serious cash flow problems caused by customers failing to pay on time. Their data shows that these businesses are groaning under the weight of $76 billion worth of outstanding invoices.
Businesses aren't much better at paying their invoices on time either. The most recent Dun & Bradstreet Trade Payment Analysis shows that Australian businesses take on average around 45 days to pay their invoices. Considering that most invoices are due within 30 days, that's a worrying number.
Solving the problem of late payment of invoices is a difficult one. However, with the help of an expert accountant, you can minimise the negative effect it has on your business.
2. Rapid expansion
Leaving your finances to chance is sure to cause serious cash flow problems.
Rapid expansion is one of the most common causes for Australian SMEs' cash flow problems. A Wolters Kluwer (WK) survey of owners of over 1,000 small businesses that failed proves this, with over 35 per cent of respondents saying their failure was due to rapid expansion too early.
Growth is essential but it can also be risky, so before you start expanding your business ensure that your cash flow is up to the task. Accountants Australia's trusted business advisory service will give you peace of mind in this respect, providing you with detailed forecasts and comprehensive business advice.
3. Poor budgeting
Most business owners have 101 things to do in a day from responding to client emails to meeting with employees and suppliers. It's understandable budgeting can fall by the wayside, but the fact is, leaving your finances to chance is bound to cause serious cash flow problems.
In fact, 61 per cent of respondents in the aforementioned WK survey said that inability to plan for rising costs was the reason for their business's failure, while a further 26 per cent named failure to seek professional advice.
Don't leave your business at risk – get in touch with the expert team of experienced accountants here at Accountants Australia. With smarter budgeting, up to the minute reporting and accurate forecasting, we can help make sure your business's future is as positive as its cash flow.