Ongoing lockdowns, business closures, uncertain trade—these factors make it hard to run your business as well as you might like. If this has been your experience, you’re not alone. ABS research as of February 2021 shows that even though COVID business impacts have eased since March 2020, 30% of businesses still report decreased cash flow. And as we’ve seen since then, uncertainties in business have continued or even increased in Australia.
Understanding how to maintain cash flow is vital for a healthy business, and that doesn’t change despite difficult circumstances. Our Stapleton Finance partners are experts in maintaining a healthy cash flow in their niches. Bookkeeping, debt recovery and savvy financing are all part of the solution.
One of the most important steps to maintaining healthy cash flow is to understand your bookkeeping. Alan Heiser of Invision Bookkeeping says, ‘If you don’t know who owes you money, or you don’t know who you owe money to, then there’s no way you can control cash flow’.
Alan advises us to remember that cash is not profit. ‘While the tax office will let you run a business at a loss, ASIC will get very upset if you try to run a business without cash as that’s trading insolvent’.
In fact, Alan says that the quickest way to send your business broke is to double your sales. If you aren’t prepared with accurate bookkeeping, and you don’t have your trading terms with customers and suppliers aligned, then needing to buy more stock before cash comes in can cause huge cash flow problems.
Your inventory accounting is also a vital part of your cash flow, because inventory is essentially cash tied up. For a healthy cash flow you need to watch your stock turnover. You need to ensure that you can turn it into cash as quickly as possible.
‘That’s why big department stores have regular sales—to turn dead stock into the cash that they can then use to buy new, good stock’, Alan says.
When you’re looking to answer the question, ‘how to maintain cash flow’, you also need to figure out how you will ensure that outstanding monies owed to you will be paid in a timely fashion. That comes down to debt recovery.
Anthony Dare of Claymore Law is a debt recovery expert. He advises his clients (and ours) that poor cash flow is one of the leading reasons that businesses fail.
Anthony says, ‘You don’t want your business to become a statistic so it’s imperative to maintain a steady cash flow. This means staying on top of your debtors’ list’.
‘We’ve seen a large increase in debt recovery enquiries in the last few months coinciding with the end of JobKeeper in March. Recalcitrant debtors are on the rise and these debtors may be carrying multiple unpaid debts and heading towards insolvency (if a company) or bankruptcy (if an individual). If you do not recover your debt in a timely manner, there may be nothing left to recover.’
Fortunately, with the right help, debt recovery isn’t as costly or time consuming as you might think.
‘If you’ve sent payment reminders and tried calling the debtor without success then have a chat with your lawyer. Often a well drafted letter of demand from a lawyer can jolt the debtor into action. We regularly recover debts on behalf of our clients without the need to commence formal legal proceedings’, Anthony says.
Anthony also tells us that if the debt is $25,000 or less, you have the option of pursuing the matter through the Queensland Civil and Administrative Tribunal (QCAT). QCAT is designed to let you resolve disputes directly without a lawyer. However, your lawyer can prepare the necessary documents if you like, and can also guide you through the process. But because they generally can’t appear on your behalf, you would present your case at mediation and a hearing.
‘QCAT is an excellent option for pursuing smaller debts where there is no commercial merit in incurring significant legal costs’, Anthony says.
Part of understanding how to maintain cash flow is understanding how and where cash flow or working capital financing can help your business. The amount of working capital you have in your business is one of the most important indicators on how future proof your business is. It shows the amount of cash you have available to operate your business while still being in a position to meet your obligations.
And cash flow or working capital needs are actually the number one reason that small Australian businesses seek financing. It can mean being able to pay your employees, buy stock and even open your doors (physically or virtually). It can mean the difference between staying afloat and sinking fast.
Our Stapleton Finance team are experts in working capital financing. We know that working capital is essential for the success of your business, whether you’re struggling under COVID restrictions or just managing regular cash flow ups and downs.
As part of our expertise we help you consider all your options—both bank and non-bank lenders and the varying costs associated with borrowing. We can also help you understand the SME Recovery Loan Scheme. This scheme provides support to businesses impacted by COVID-19 and flooding, has been extended to the end of 2021. The government has also expanded the scheme to remove previous limitations. That includes the requirement that SME’s have received JobKeeper during the March 2021 quarter. Or, in the alternative, was ‘an eligible flood-affected business.
Working together we can find the best solution for you. Then we can help you through the process of applying for working capital financing. At the end of the day, our expert team can help ensure that you’re in a strong cashflow position. And this means you’ll be in a better position to ride out any downturns however they arise.
Whether we’re in an economic downturn or simply managing everyday business ebbs and flows, cash is still king. And understanding how to maintain cash flow is a vital part of running a healthy business.
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**Disclaimer**
This article is intended to provide commentary and general information only. It should not be relied upon as legal advice. It is always best to speak with a lawyer and formal legal advice should be sought if you have a particular matter of interest arising from this article.
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