by Paul Gidley25.11.20

Starting a small business is a risky pursuit that can also be incredibly rewarding. As the saying goes, a lot of blood, sweat and tears goes into those first few years before you profit, or even break even. All SMEs (Small to Medium-sized Enterprises) have their own stories and reasons for being, but there are a few commonalities around financial issues. There are usually fewer safety nets when you’re an SME, which can make financial problems seem extremely difficult to overcome. Sometimes even impossible. There are ways, though, to keep your business’ head above water during financial tight spots that don’t require an enormous amount of effort. Mostly, it’s about making relatively small adjustments across the board for significant positive outcomes.

Small Business Financial Problem: Cash flow


Cash is vital for small businesses to survive. For some, that is the lifeblood of its existence, even day-to-day. If the cash flow dries up, then so can the business. There are ways to protect and generate cash flow that goes beyond the obvious (like expanding business).

Collect from your debtors

You might be up to date with your invoicing, but when was the last time you checked your accounts receivable? Or your due dates? Going through your invoices and chasing up money owed can give you a significant surge in cash flow for work already completed (so no extra work required for it). Work with your debtors, too. They may not be paying because they’re having their own cash flow issues. Rather than remain unpaid, talk to them about payment plans that work for both of you.

Audit your expenses

Typically, the way to generate profit is to have fewer outgoings than incomings. Some outgoings, though can be assumed to be fixed: utilities, rents, supplier costs. But it’s worth contacting your service providers and suppliers, or gathering quotes for price matching, to discuss negotiating price or the level of service you’re receiving. Adjusting each just slightly can make a big overall impact on your costs.

Small Business Financial Problem: Inflation


As the cost of living goes up, so too does the cost of business. You can negotiate the smaller services you use, but there are limits to this as inflation organically increases across the board. Inflation means that you should be looking at your service or product costs and seeing if they are true to the current market. Go through your offerings and check them against industry averages. Check where you can mark up your prices, or negotiate new terms with your customers.

Small Business Financial Problem: Interest Rates


Businesses and individuals have very little control over interest rates. However, you can make them work for you as best you can, and make contingency plans with the knowledge that they will be fluid.

Adjust your loan terms

It can be tempting to opt-in for a fixed rate on your loans, especially if they are at a relative low. However, by doing so, you are limiting your chances of paying off your loan earlier. Instead, consider splitting it into one portion fixed and one variable, providing yourself with the benefit of flexibility and security.

Plan ahead

Some situations can’t be predicted (like a global pandemic, for example), but you can typically expect that interest rates will experience fluctuations over time. Where you can, prepare for these changes. This can be paying higher loan repayments when you’re in a good financial position, giving yourself breathing space when you aren’t, or making it a priority to create a savings account that will be your delegated financial buffer.

Shaw Gidley are experts in restructuring, turnaround and insolvency and provide free initial advice on these matters. Please contact our offices on (02) 4908 4444 or (02) 6580 0400.