The five cash flow hurdles inhibiting Aussie businesses

A smooth and reliable level of working capital is essential to the success of any business and with the current economic challenges it’s becoming harder for businesses to maintain this.

Recently released data from accounting platform Xero shows one-third of Australian small business owners are unable to pay themselves due to cash flow challenges and 27% are being forced to dip into their personal savings to mitigate rising costs.

Inflation has greatly impacted Australian businesses’ cash flow over the past six months. Rising costs and changing consumer behaviour have seen a shrinking profit margin for many businesses, putting a strain on working capital, but conversely, it is also during periods of growth that we see small businesses really struggling with their cash flow.

Top 5 cash flow hurdles

1. Lending Restrictions

It’s a tough time for any small or medium business owner to obtain bank finance with access to working capital becoming harder to come by. Banks have tightened lending criteria making it difficult to obtain loans or raise credit limits.

2. Slow Paying Customers

Many large companies have invoice terms as high as 60 days, which is a long time to wait to be paid after you have delivered your goods or services to your customers. Please consider this when signing contracts and adjust your cashflow forecasting accordingly.

3. Rapid Expansion

Businesses that grow too quickly can find themselves struggling to maintain cash flow. A combination of increased overheads like materials, staff and expanded equipment sees them drain their cash supply to meet orders. Without a cash flow injection these businesses may have to turn away orders as they wait to get paid from the last.

4. Seasonal income

Businesses that raise most of their income in one part of the year can find they run out of funds if they don’t diligently manage their expenses. Businesses making seasonal goods such as beachwear, Christmas items or seasonal rural products are examples of this.

5. Lack of customer credit checks

Many Australian businesses experience cash flow problems because a major customer goes bankrupt, exposing them to bad debt.

Do your due diligence when it comes to customer credit checks and  set reasonable limits  for customers with poor credit history. Avoiding defaults and late payments could stop your business from going broke.

It’s important for business owners to realise that profit and cash flow are not the same thing. You can have a profitable business on paper and not have a dollar in the bank.

Speak to us if you need help with your business’s cash flow.

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